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If you’re considering equity release, you may be confused by all the jargon terms related to the product market, leaving you unsure if equity release is right for you. Don’t be put off as equity release is a brilliant financial product, as you’ll discover in this Key equity release review.
Unlocking your property value may indeed be the answer for you. However, you must develop a comprehensive understanding of how equity release will impact the market value of your home and what’s considered market value with equity release. Jason Stubbs from EveryInvestor explores this topic in the following article.
Defining Equity Release
Equity release is a retirement mortgage designed for UK-based homeowners over 55. Unlike with a traditional mortgage, you access the funds tied into your already established property value but still have the opportunity to live at home.
Lenders allow you to choose from unlocking the cash in a lump sum, as a monthly salary, or placing it into a drawdown facility to access whenever you wish. You’ll only pay interest on the funds you withdraw. While you can pay back the monthly interest and some of the loan annually, there’s no obligation to do so.
Defining Market Value
Market value refers to the current value of your property. This is based on a detailed valuation that a surveyor conducts. Market value will be determined by the sale price of similar homes in your area, the condition of your property, and its construction type.
Will You Benefit from the Full Market Value of Your Property with Equity Release?
No, you won’t benefit from the full market value of your property with equity release.
With a lifetime mortgage, the UK’s most popular equity release product, you’ll receive between 20% and 65% of your property value and then be charged compound interest. However, you can reduce the overall loan cost by paying off the monthly interest and stopping it from accumulating.
A home reversion scheme differs in that you sell your home, or a portion of it, to the lender below market value. When you pass away or need long-term care in a facility, your home is sold, and the lender will receive the full value of their share. What’s more, if you want to cancel the loan, you must pay back the portion of your property that you sold, but at full market value.
How Can a Retiree Access Full Market Value?
If you, as a retiree, want to access your estate’s full market value, you’ll need to opt for the most popular alternative to equity release, downsizing. This way, you’ll sell your property in exchange for a smaller or cheaper home.
Why Opt for Downsizing Instead of Equity Release?
You might opt for downsizing instead of equity release if leaving an inheritance is important to you. Not only does equity release prevent you from accessing your full market value, but it also reduces your inheritance. With downsizing, you can leave the new property to your heirs.
That being said, equity release does come with inheritance protection, so you can set aside a portion of your estate that will be left to your loved ones. You can also use equity release to give an early inheritance and avoid inheritance tax.
In Conclusion
Now that you understand the market value for your home with equity release, you hopefully have a broader sense of what you can achieve with these retirement products. Once a surveyor has conducted a detailed property valuation, you’ll know how much equity is available in your estate. In the meantime, you can try EveryInvestor’s free equity release calculator to get an accurate estimate.
David Prior
David Prior is the editor of Today News, responsible for the overall editorial strategy. He is an NCTJ-qualified journalist with over 20 years’ experience, and is also editor of the award-winning hyperlocal news title Altrincham Today. His LinkedIn profile is here.
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