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What is an equity release mortgage?

Capital release refers to a range of products that allow you to access the capital (cash) fixed in your home if you are older. You can take the money you release as a lump sum or, in several smaller amounts, or as a combination of both. Once you have paid off your mortgage, you will have 100% of the capital of your property; in other words, you will own it in full. However, as the value of your home increases, you won't get any cash benefits, since that extra value won't be converted to cash until the property is sold.

If you never sell, only your assets and your beneficiaries will be better off. A capital release mortgage involves a lender giving you cash in exchange for a share of the profits from the sale of your property later on. However, unlike a traditional mortgage, which is paid within a certain amount of time, a capital release loan isn't paid off until after you leave your home. Once you have taken out a lifetime mortgage, the loan will accrue interest.

Some lenders allow you to pay interest every month, but many people choose to let the interest pile up. A home reversal mortgage involves you selling part or all of your property to a home reversal provider. The provider pays you less than the current market rate, but you retain the right to continue living in your home for as long as you want. You can change houses, but the home reversal provider will have to consider that the new property is acceptable, since the lender will, in effect, be a co-owner of the new home and will become the new collateral for the loan they have granted you.

Bankrate services are provided at no cost to you, but we may receive a commission from the companies we refer you to. Capital release allows homeowners age 55 and older to release tax-free money from the value of their home. The amount you can release is based on your age and the value of your home. Depending on the capital release product you choose, you can claim your money as a large lump sum or as a series of smaller lump sums.

Capital release is a way to free up some of the value of your home so that you can enjoy tax-free cash for other things. You must be 55 years old or older, but you don't need to have paid your current mortgage and you can stay in your home. With the release of capital, you are basically applying for a loan with the money you have already invested in the purchase of your home. You can continue to live in your house for as long as you want.

If you have doubts or have any questions, talk live with an expert advisor from National Debtline. This fact sheet covers England & Wales. We also have a version for Scotland if you need it. If you live in a mortgaged property, the principal of the property is the difference between the value of your home and the total of the mortgage and any loans you have guaranteed on it.

The release of capital is an agreement that allows you to access the money in this capital without having to leave your home. You must generally be at least 55 years old. You may be able to accept the money you hand over as a lump sum or in smaller regular payments, or both. Freeing up capital can be useful if you want to repay an existing mortgage, increase your income or pay for your care needs.

If you need time to get debt counseling and find a solution to the debt, you can consider requesting a respite. Many different creditors may ask you for money. Some may put more pressure on you than others. However, this doesn't always mean that you should pay those creditors first.

Before you decide what to do with your money, it's important to understand the powers that different creditors have. Priority creditors have the most power. If you don't pay what you owe, you could lose an essential service or an essential item. For example, if you don't pay your mortgage, you could lose your home.

If you don't pay for gas or electricity, your supply could be cut off. If you don't pay your city taxes, councils in England could request that you be sent to prison as a last resort. Non-priority creditors can't immediately pick up an essential service or an essential item if you don't pay them. These creditors have more limitations on what they can do to collect what you owe.

Credit cards, unsecured loans, store cards, and unsecured overdrafts are examples of non-priority debts. If you use the money you collect from capital release to pay off debts, this may affect your right to benefits. Life mortgages and home reversal plans work differently. What's right for you depends on your circumstances and what you want to achieve.

A lifetime mortgage can provide you with funds in a single lump sum or in smaller amounts over time. You will agree on the maximum amount of money you can borrow with the plan provider. If you take out a lifetime mortgage, you'll still own your home. The annuity mortgage will entail interest.

The loan and interest will be repaid when you die or move to a long-term care facility. Under this plan, you can sell all or part of your home to a home reversal company. They then give you a lump sum of money or regular monthly payments. You can continue to live on the property until you die.

You don't have to pay any rent. Life mortgages and home reversal plans are regulated by the Financial Conduct Authority (FCA). The FCA rules say that stock issuing companies must take reasonable steps to ensure that any capital release product they recommend is right for you. In addition, when the company considers whether capital release is right for you, it should consider how it will affect the benefits it receives and its fiscal position.

The Equity Release Council (ERC) is a non-profit organization that represents different types of firms that participate in the release of capital. This includes lenders, qualified financial advisors, lawyers, and other industry professionals. It aims to provide you with information and protection if you are considering participating in a capital release plan. They provide guidance to their members on how participation in a capital release plan should work.

All firms that advise and offer capital release plans and that are members of the ERC must follow the FCA rules on capital release. They must also follow the additional rules and guidelines established by the ERC. By using a company that is a member of the ERC, you will have more guarantees to ensure that freeing up capital is a realistic option for you. You can search for an ERC member using the Find a Member directory on the ERC website.

The ERC has certain standards that it recommends that capital release products meet. ERC members should only say that the product they offer meets these standards if it meets all of them. Check if any stock issuance product you are considering meets all ERC standards. You will likely be charged different fees when you enter into a capital release agreement.

It is very important that you receive unbiased financial advice on the advantages and disadvantages of a capital release plan. Before you agree to hire an independent financial advisor, check what your fees will be and when they will have to be paid. If you are considering freeing up capital, contact StepChange Financial Solutions (part of StepChange Debt Charity) for free and unbiased advice on capital release plans. Your advisors receive regular salaries, rather than commissions, depending on the number of plans they help sell.

They are fully qualified and can help you consider all of the different capital release products that are available to you. This will help you decide if capital release is right for you and, if so, which product best fits your circumstances. If you decide to obtain independent financial advice from another location, search the ERC website to verify that the financial advisor you use is a member of the Equity Release Council. You can also contact The Society of Later Life Advisers.

Its members are financial advisors who are trained to provide financial advice on issues that will affect you in the future. Many websites have capital release calculators that ask you to provide your personal details before providing you with more information. Your information may then be transmitted to other organizations, which may contact you to try to sell you inadequate capital release products. If you have any complaints about a financial advisor or capital release provider, request a copy of their grievance procedure.

If you have followed their complaints procedure and are not satisfied with your response, or if your complaint has not been resolved after eight weeks, please contact the Financial Ombudsman Service. You can seek legal advice using the Law Firm's website. Also check that your legal advisor is a member of the Equity Release Council. If you have a complaint about an attorney, request a copy of their grievance procedure.

If you have followed their complaints procedure and are not satisfied with your response, contact the Legal Ombudsman. You may want to consider alternative ways to raise funds, rather than choosing a capital release plan. If you only want to borrow a small amount and can pay the repayments with your usual income, an unsecured loan may be cheaper than a capital release plan. If you haven't paid your current mortgage yet, your lender may agree to extend it and free up some more money for you.

Whether your lender does this depends on your policy, your age and your circumstances. You might want to consider selling your house and moving to a cheaper property. This would allow you to free up money from your home and remain the owner of your new property. However, you will have to pay legal fees for an attorney, real estate agent fees, moving expenses, and possibly stamp duty.

Fact sheet on ways to pay off your debt. Capital release is a way to recover part of the value of your home in tax-free cash when you apply for a home loan. You can choose to receive your money in cash as a lump sum or in regular payments. If you have people to transfer assets to, freeing up capital generally means that they will have less to inherit.

If so, you'll also need to seek legal advice from a lawyer, whose job is to make sure you understand the ins and outs of freeing up capital. The money that is unlocked by freeing capital from the property is tax-free and can be spent in a variety of ways. Freeing up capital is an important decision, but finding the right annuity mortgage could open doors to the things you've always dreamed of, whatever they may be. Ask your advisor if they have someone to recommend you to, so you can ensure that you choose a specialized lawyer with experience in freeing up capital.

The benefit of a discounted loan is that interest is only charged on the money you have already released from your capital. .

Nigel Cook
Nigel Cook

Coffee expert. Hardcore social media fan. Wannabe tv junkie. Amateur web fanatic. Incurable internet scholar. Infuriatingly humble travel trailblazer.

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