Equity is the difference between the current value of your house and the amount you owe on it. For example, if your home is worth €400,000 and your mortgage is €100,000, then you have equity in your property of €300,000.
If you own your home, an equity release scheme could allow you to release some of the value of your home without having to make repayments during your lifetime, move out or sell your home on the open market. The conditions of equity release include that you cannot have an existing mortgage on your home and that you have reached a certain age, for example 60, to avail of the loan
Equity release schemes are different to topping up or increasing your mortgage.
Why would you use equity release?
Equity release schemes are not suitable for everyone, but they may be worth considering if you need to raise a lump sum, or you need a regular income for your retirement and you:
- Don’t want to sell your home and live elsewhere and
- Are not concerned about passing on the value of your home to your family or other beneficiaries on your death
Don’t be tempted to use an equity release scheme to raise money for investments that may be risky. You could lose some or all of your investment and any return you make on your investment is likely to be less than the cost of the equity release scheme.
Risks and alternatives
Choosing an equity release scheme is not something you should enter into lightly. There is always the risk that you might need the equity in your home later on, for example, to pay for nursing home care. Also be aware that if you release some of the equity from your home, you will not be able to pass on its full value to your family or beneficiaries.
With some lifetime mortgages, the lender may insist that the mortgage is paid off if you move out of your home, for any reason, for longer than six months. Ask your provider what their policy is on this.
If you are considering an equity release scheme, get independent legal and financial advice first and consider the alternatives, including:
- Selling your home and moving to a cheaper or smaller one
- Getting a different type of mortgage if you have an income to meet the repayments
- Renting out one or more rooms
- transferring ownership to a family member in return for the cash you need and the right to live in the property for life. Be sure to get independent legal advice if you are considering this option
Fees and charges
Depending on which scheme you choose, you may have to pay:
- A valuation fee. The amount of money you can get through an equity release scheme depends on the value of your home. So it is important to make sure the valuation is independent – you may also want to get a second valuation yourself
- Legal fees and costs
- A fee for the independent legal and financial advice you need to protect your interests
- An administration fee
Some companies have a fixed ‘set-up’ fee to cover the legal and valuation fees. You may need to put aside between €1,500 and €3,000 to cover these costs. Some providers may allow you to pay fees through your lifetime mortgage so that you do not need to have this money up front. However, if you pay fees through your lifetime mortgage, you will pay interest on them, meaning they will cost you more in the long run.
Insurance and home maintenance
For all equity release schemes you must:
- keep your home in a good state of repair
- insure your home, noting the lender’s or home reversion company’s interest in the policy
Maintenance costs can be high, particularly as your home gets older. The lender or home reversion company can inspect your home from time to time and they can carry out repairs that you must pay for if you don’t maintain your home to their standard. If you have a lifetime mortgage, repair costs will be added to the amount you owe, so interest would be charged on those costs.
Also bear in mind that some schemes may prevent you from making certain renovations to your home, as your provider may consider that they reduce the value of your home. Such renovations could include installing ramps, lifts or railings, which you may need in the future, so ask your provider what their policy is on this.
Can your home be sold against your wishes?
The terms of your agreement may allow your lender to insist that your home is sold and the mortgage paid off if:
- You move out of your home for six months or more (unless your mortgage is in joint names and the other owner is still living there)
- You don’t insure your home or
- You don’t look after your home to the standard that has been set by your lender to maintain its value
Issues to consider with equity release
- What happens if my partner and I have to go into long-term care?
- How will the money I get affect my pension or entitlement to other state benefits?
- Can the scheme be transferred to another property if I want to sell up and move later on?
- Could the lender or home reversion company sell my home against my wishes?
- What fees and charges do I have to pay?
- How will my decision affect my beneficiaries?
- If I live longer than expected, will I have enough money left to pay for my long-term medical and living costs in the future?
- Can I change my mind? What penalty, if any, could apply if I do?
- What are my rights if I have a complaint against the company?
- If someone who relies on me financially lives with me, could they continue to live in my home if I move out or die?
- What do I want to leave to my children or family? And should I discuss it with them first?
In accordance with the provisions of the Consumer Credit Act 1995, the following are for your attention:
Warning: Your home is at risk if you do not keep up payments on a mortgage or any other loan secured on it. The payment rates on this housing loan may be adjusted by the lender from time to time.
Note: The above notice in respect of adjustments to repayment rates will not apply during any period when the loan is at a fixed rate.
In accordance with the provision of the Consumer Protection Code (CPC) 2012 the following are for your attention:
Warning: If you do not keep up your repayments you may lose your home.
Warning: If you do not meet the repayments on your loan, your account will go into arrears. This may affect your credit rating which may limit your ability to access credit in the future.
The following warning applies in the case of variable rate loans:
Warning: The cost of your monthly repayments may increase.
The following warning applies in the case of fixed rate loans:
Warning: You may have to pay charges if you pay off a fixed rate loan early.
The following warning applies in the case of debt consolidation loans:
Warning: This new loan may take longer to pay off than your previous loan. This means that you may pay more than if you paid over a shorter term