Equity release options for under-55s
If you want to release cash from the equity in your home we look at your options if you’re under 55 and when they might suit you.
The equity in your home is its current value minus any mortgage remaining on it. If you have owned your home for years and property prices have risen over that time you may have considerable wealth tied up in it.
Can you get equity release if you are under 55?
While there are specific products available for releasing equity from your home – lifetime mortgages and home reversion plans – they are designed to allow people to access cash in retirement and not available to anyone under 55.
A lifetime mortgage lets you take out a loan against the value of your property that you don’t have to pay back until you die or move into long-term care, while a home reversion plan lets you sell a share of your home (at less than the market value) while continuing to live there until you die or go into long-term care.
So if you’re younger than 55 and want to access cash, you’ll need to explore other options.
Transfer of equity
It may still be possible to take out an equity release product if you own your home jointly with your partner and they are over 55 by transferring your share of the property to them. They would then be able to take it out in their name only.
However, you will have to pay legal fees and possibly stamp duty to do this. It would also mean you no longer legally own any of the property so if you’re not married to your partner you would have no right to any of the equity if the relationship ended. If you are married and bought your home together though, it should be counted as a matrimonial asset.
Always get legal advice before deciding whether to do this so you are aware of all the possible implications. If you still have a mortgage on the property your first step should be to contact your mortgage lender.
Remortgaging to release equity
If you’re no longer within the period of your initial mortgage deal and won’t have to pay early repayment charges to switch deal, you could remortgage to increase the amount you’re borrowing. If you still have a number of years left on your mortgage term, it’s usually best to switch once your current deal ends anyway to pay a lower interest rate.
This is a particularly good option if the value of your home has increased in relation to your mortgage since you took it out as your loan-to-value (LTV) – the amount of your mortgage as a proportion of your property’s value – will have gone down. The amount of the loan you have paid off up to this point will also reduce it. The higher the LTV the higher the rate you’ll normally pay.
As well as higher monthly repayments on your increased loan, you may also have to pay arrangement fees, legal fees and valuation fees to remortgage. Speak to an independent mortgage adviser to find the best deal for you. You can find an adviser at Unbiased.co.uk.
If you’ve already paid off your mortgage, you may be able to take out a new mortgage as long as the end of the term isn’t beyond the lender’s upper age limit. Learn more about remortgaging.
If you can’t remortgage and need more than £25,000, a secured loan could be an option. Like a mortgage, the loan is secured on your home or another valuable asset (which means it could be at risk if you can’t keep up the repayments) and you can take one out even if you still have a mortgage on your property. Maximum LTVs apply.
The interest rate you are offered depends on your credit score and rates are higher than for mortgages – around 6% APRC (annual percentage rate of charge) or more for a £25,000 loan for 10 years, or more than 4% APRC for a £100,000 loan, versus around 3% APRC or more for a mortgage of up to 80% LTV.
Paying a higher interest rate over a shorter term could cost less than paying a lower rate over a longer term so it’s important to do the maths to weigh up what’s best for you and shop around for the best deal. Learn more about secured loans.
If you need £25,000 or less and can afford to pay it off over five years or shorter (although it is possible to find terms of up to 10 years), a personal loan could be a better option. It isn’t secured on your property so you won’t be putting your home at risk, or extra risk if you already have a mortgage. It can still affect your credit score if you miss repayments though.
Personal loans are available from around 3% APR upwards but as with secured loans, the rate you pay depends on your credit score. Your property’s value has no bearing on the amount you can borrow or the deals you can get. Learn more about personal loans.
If you’re happy to move home, moving to a cheaper property is another way to release equity, whether you still have a mortgage or not. You can either move to a cheaper area to get a home of a similar size or move to a smaller property.
There are many costs involved in moving house though, including legal fees, stamp duty if the value of the property is above a certain amount, estate agent fees and removal costs, so make sure you take these into account when deciding if this is the right option for you. You also won’t benefit as much from rising house prices.
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