One of the common myths surrounding equity release schemes is that you no longer own your home when applied. However, in reality, you will not only remain the legal owner, but you will also generally enjoy the freedoms – and responsibilities – associated with home ownership.
If you decide to release equity from your home under a later life lending scheme, you will still be the legal owner of the property, but exactly how the ownership is calculated will depend upon what type of product you decide to take out.
The two most popular forms of equity release schemes are:
With a Lifetime Mortgage product, which is the most common type of equity release, you will still retain ownership of your home and can continue to live it in until you die or go into long-term care.
A lifetime mortgage involves releasing cash from your home (currently around 20% to 50% depending on your age) and repaying it only when you move home, or the last surviving partner passes away or goes into care. Rather than paying monthly payments like a regular mortgage, the entire loan plus interest is rolled up and paid to the equity release lender when the plan comes to an end. You do, however, also have the option to make the interest payments or even make overpayments to reduce the debt, subject to lending criteria.
Home Reversion scheme
By contrast, if you use a Home Reversion plan, the second most common form of equity release, this is closer to selling a part of your home — or up to as much as 100%. So, if you are using a Home Reversion plan, you will be giving up some or all of the value of your home.
Whilst the Home Reversion company effectively buys an agreed proportion of your house, no matter what percentage it is, you will still remain the legal owner until the property is sold.
Your right to stay in your home
If you take out a mortgage provided by a member of the Equity Release Council, you have the assurance that you will be able to remain in your home for the rest of your life, as long as you keep within the terms of the agreement. You will also have a ‘no negative equity’ guarantee, meaning you or your heirs will not end up owing more money to the equity release company than your home is worth, provided it has been sold for the best price reasonably obtainable.
Your rights and responsibilities as the owner of your home
As a homeowner, you already enjoy certain freedoms, but you will also be aware that you should look after your property. The same is true if you are to take out an over 55 equity release scheme.
Property maintenance: You will be required to maintain your house to the same standard as when the equity release scheme was originally applied.
Home alterations: Most equity release companies are happy for you to make modifications to your home – especially if they add value to your property – as long as you get their written consent prior to undertaking any work.
Moving home: Whether you want to move house to be nearer to family, have a home that is easier to maintain or enjoy an area of the country you’ve always loved in retirement, you will still be able to do so in most cases.