The Mortgage Clinic: 'How should we free up our equity?'


My husband and I have just turned 60, and intend to work for perhaps another year. We now own our house outright, and my husband is keen on an equity release scheme, which would free up some money for our retirement - but I'm worried that we'll end up no longer owning our home. What are the hidden catches?
BL, Wimbledon

A. Most people look at equity release schemes because they want to access some of the value of their property, but continue to live in it.

This is, though, quite different to releasing equity in a property, which many home owners do by taking out a larger mortgage. Equity release is designed for older home owners, and indeed some families use it, in part, for inheritance tax planning.

The two main types of equity release schemes on offer are lifetime mortgages and home reversion plans. From last week (6 April) home reversion plans became regulated by the Financial Services Authority.

Home reversion plans involve selling your property now to a financial provider, in return for a cash lump sum and the right to live in the property, rent-free, for life.

With a lifetime mortgage, you keep ownership of the property and take out a mortgage, but instead of paying the mortgage interest every month, it " rolls up" and is paid, with the capital, out of your estate or if you sell.

In neither case will you be paid the full market value of the property. Lifetime mortgages, in particular, have to limit the sum they advance to prevent home owners going into negative equity.

"The amount of equity that can be advanced will depend on your ages and at the age of 60 is likely to be around 20 per cent to 25 per cent of the property value," says David Hollingworth, a director at mortgage brokers London & Country. "In fact, 60 is pretty young for equity release and most products carry a minimum age of 60." Some providers only offer release schemes to those over 65.

If you do opt for equity release, Mr Hollingworth suggests that a lifetime mortgage might be more practical as you will still gain from any increase in the value of your property.

"Some schemes now also allow a drawdown facility to be set up so that an initial sum can be withdrawn but access is guaranteed to further funds as and when they are needed. This means the interest will roll up at a slower rate, as the funds need not be released all at once," he says.

Lastly, don't rule out selling your house and moving to a smaller property. Moving is the only way to unlock your property's maximum value, and stay debt-free.

Confused about your mortgage options? Foxed by jargon? E-mail mortgageclinic@independent.co.uk

NB: we will not reveal your identity, and we cannot give specific advice

Arts and Entertainment
filmPoldark production team claims innocence of viewers' ab frenzy
Life and Style
Google marks the 81st anniversary of the Loch Ness Monster's most famous photograph
techIt's the 81st anniversary of THAT iconic photograph
News
Katie Hopkins makes a living out of courting controversy
people
News
General Election
Latest stories from i100
Have you tried new the Independent Digital Edition apps?

Day In a Page

Revealed: Why Mohammed Emwazi chose the 'safe option' of fighting for Isis, rather than following his friends to al-Shabaab in Somalia

Why Mohammed Emwazi chose Isis

His friends were betrayed and killed by al-Shabaab
'The solution can never be to impassively watch on while desperate people drown'
An open letter to David Cameron: Building fortress Europe has had deadly results

Open letter to David Cameron

Building the walls of fortress Europe has had deadly results
Tory candidates' tweets not as 'spontaneous' as they seem - you don't say!

You don't say!

Tory candidates' election tweets not as 'spontaneous' as they appear
Mubi: Netflix for people who want to stop just watching trash

So what is Mubi?

Netflix for people who want to stop just watching trash all the time
The impossible job: how to follow Kevin Spacey?

The hardest job in theatre?

How to follow Kevin Spacey
Armenian genocide: To continue to deny the truth of this mass human cruelty is close to a criminal lie

Armenian genocide and the 'good Turks'

To continue to deny the truth of this mass human cruelty is close to a criminal lie
Lou Reed: The truth about the singer's upbringing beyond the biographers' and memoirists' myths

'Lou needed care, but what he got was ECT'

The truth about the singer's upbringing beyond
Migrant boat disaster: This human tragedy has been brewing for four years and EU states can't say they were not warned

This human tragedy has been brewing for years

EU states can't say they were not warned
Women's sportswear: From tackling a marathon to a jog in the park, the right kit can help

Women's sportswear

From tackling a marathon to a jog in the park, the right kit can help
Hillary Clinton's outfits will be as important as her policies in her presidential bid

Clinton's clothes

Like it or not, her outfits will be as important as her policies
NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders