Article | Apr 2024
Making an application for equity release could be the perfect way to earn a tax-free lump sum of money, depending on your circumstances. That is because you may be able to unlock some value from your property and put the money to use in achieving your goals.
However, before starting the equity release process, you should consult with a fully qualified adviser. At Responsible Life, our advisers provide all the information needed around releasing equity from your home. This includes advice around the process of paying back equity release.
In this article, we will run through everything you need to know about equity release. This includes information around when and how much you will need to pay back.
The amount of money that will need to be paid back on equity release will be different for each individual case. The amount will depend on a few factors, including how much you release from your home, the interest rate, and whether you choose to make payments in your lifetime.
At Responsible Life, we have created a free equity release calculator so you can work out how much money you could be able to borrow with a Lifetime Mortgage. The calculation is based on a couple of factors. These include the age of the youngest homeowner, who has to be 55 or over to qualify for equity release, and the estimated valuation of your property.
Interest on a Lifetime Mortgage compounds, meaning it will be added to the previous amount plus interest and increase over time. Your adviser will produce a personalised illustration that indicates the impact of this and show exactly how much you will owe when it is repaid.
Repayment is not due until the last homeowner on the deeds has passed away or entered long-term care. At this stage, the home will usually be sold to clear the balance.
You can read more about this in our extensive guide to equity release interest rates.
How much you pay back with equity release could also be affected by your choice whether to make payments or not. With a Lifetime Mortgage, all payments are entirely voluntary, giving you the control to manage them in line with your budget.
By paying some of the interest within your lifetime, you will limit the rate that interest is added to the release and have a lower amount to pay back in the future.
Our advisers specialise in giving advice on the most popular type of equity release product, a Lifetime Mortgage. With this product, the interest rates are fixed for life. Another benefit of a Lifetime Mortgage is that you will never owe more money than your home is worth.
The funds that you release will be tax-free. This is because you are unlocking the value that you already own from your home and not earning a new income.
During your consultation, they will explore the impacts of releasing equity. This includes that it will reduce the value of your estate and potentially affect your entitlement to means-tested benefits. They will also explore the process of paying back equity release and help you to assess whether it’s right to consider making voluntary payments in your lifetime.
Outside of making voluntary penalty-free interest payments on your equity release, you will not need to pay back the money borrowed during your lifetime.
However, once the last homeowner passes away or enters into long-term care, then the money borrowed on equity release will need to be repaid.
This will usually be achieved with the sale of your home, although the executors of your estate can choose another method should one be available to them.
Equity release is intended to be a lifetime loan, so is unsuitable for short-term lending. However, we all know that circumstances can change, and you may find yourself wishing to repay your Lifetime Mortgage early.
If early repayment is likely to be in your future, let your adviser know. They can help you to explore products with fixed and defined early repayment charges, so that you will know exactly how much it will cost you each year. Some lenders offer them on a sliding scale, reducing over time.
If you are interested in learning more about paying equity release back, you can schedule a call with our Information Team today. They are available to answer your questions and support with booking a no-obligation appointment with one of our advisers.