Equity release is a way for people over 60 to get at the cash locked in the value of their homes. But how does it work and which are the best schemes? 

How can I decide which scheme is best for me?

Contact an adviser through this website for FREE no obligation advice.

Am I eligible? 

As with most lending products, there are several key requirements that you will need to meet in order to be eligible for a Lifetime Mortgage or Home Reversion plan. The most basic requirements are: 

The other requirements are related to your personal circumstances and your property. 

Your circumstances - Applications can be joint or single. Joint borrowers do not need to be married, but they both must hold full title to the property.

 Your property -  Your property must be in England or Wales and it must be your main residence. Some restrictions may apply over the type of property that you own. 

Outstanding mortgages -  If there is a mortgage outstanding on your property then this must be repaid either before or at the start of the lifetime mortgage. The funds provided by the equity release  can be used to clear this debt. 

Other occupiers - On application, your home should be occupied by people who hold title to the property. If there is anyone else living in the property aged 17 or over, they can continue living in the property but they must seek independent legal advice and must sign a Deed of Consent.

How much can I borrow? 

The amount that you can borrow depends on your circumstances, which include your age and the value of your home. If there are two of you borrowing together, the amount available depends on the age of the younger borrower. In order to gain an accurate value of your home, a professional valuer will be appointed by the lender.

For further details on exactly how much you can borrow, please contact a specialist adviser.

Will my family get any money when I die?

This depends greatly on many factors including the type of scheme taken out. With a home reversion scheme your family can be guaranteed benefit from the property on your death. They will receive the sale proceeds relating to the portion of the property which you still own. This also includes any appreciation on the property value on the portion still owned. With a lifetime mortgage, the portion is more difficult to predict as it will depend on how long the loan has been outstanding and the interest accrued, in addition to any movement in property prices. However, there are providers who may allow you to protect a proportion of the equity if required. All products from SHIP (Safe Home Income Plans) providers carry a no negative equity guarantee.

What is drawdown, why might I want to consider it and how does it work?

A drawdown facility allows someone to release further equity at a later date. Drawdown can provide reassurance that there is a reserve of cash available, but you don't have to release more money than you need. Some schemes can guarantee a drawdown for life, others offer the facility for a number of years.

People who release equity should always only take what they need; they should not find themselves with tens of thousands of pounds in a bank account.

Can you get additional cash from both types of scheme?

Yes, there are some reversion schemes and some lifetime mortgages that offer facilities that allow customers to release more equity in the future. It is important that you fully understand the terms, however, as you could be paying more interest on your initial loan for example because you opted to have the reserve.  In other words, if you may not need a drawdown facility, don't get it, as it could be a costly decision.

How much do schemes cost and how and when do you pay for them?

It depends entirely on the type of equity release plan and the company that is offering it. Typically an application fee is required, and prices for this vary. The initial fee usually covers the cost of valuing your property as well as any associated administration costs.

Under FSA regulation, companies must make it clear that they charge such a fee and detail exactly how much will be charged. There may also be legal costs involved. Some companies will help with or even undertake solicitor's fees and legal costs, but it is down to the individual equity release company.

How can I make sure I am protected?

Lifetime mortgages have been regulated by the City watchdog - the Financial Services Authority - since 2004 and home reversions since April 2007. It means any company selling the plans has to conform to certain rules and regulations and, if anything goes wrong, you may be able to claim compensation.

Buying though a SHIP-registered firm gives added protection as they have to conform to certain professional standards. Ask an adviser if they have the relevant equity release qualification, such as the CII Certificate in equity release. If not then seek out an expert.

Remember, taking out an equity release scheme is not simply raising some cash now, but making a financial decision that will affect you for the rest of your life, which could mean decades ahead. Make sure you know exactly what you're getting into. There are other schemes which offer cash to older homeowners, but they are much riskier and a good adviser will not recommend them.

Be wary of 'buy and rent back' schemes, for instance, where a company buys your home and grants you a lease for a set period. They have only been around for a while but already there have been heartbreaking stories of elderly folk ending up virtually homeless because they didn't read the small print on these schemes.

The key to a successful equity release arrangement is understanding. Take as much advice as you need, and don't be rushed into making a decision.

Contact an adviser through this website for FREE no obligation advice.