Equity release is the process of releasing equity or money from a homeowner’s primary residence without having to move out of it. The equity release method is often utilized by seniors who want to free up their money later in life. Depending on where a homeowner lives, it may be possible to make this type of arrangement as early as one's mid-50s.
The main purpose of equity release is to raise money, either for income or for lump sum purchases. Many seniors use equity release in order to purchase a second home or to add to their retirement funds. An equity release may also be helpful if late life medical bills are an issue.
Typically, this method of raising capital is undertaken when other options are not available. This is often the case when purchasing a second home, because taking out a second mortgage requires a large down payment. Using equity release, it is not necessary to come up with these funds. Simply put, equity release plans give homeowners a way to turn some of the value of their homes into cash.
There are several methods that can be utilized to release equity from a home. A financial advisor should be consulted to determine the best form of equity release for a person’s unique situation. In general, the best candidates for equity release are people over 55 years of age, those who own a property worth at least 80,000 US dollars (USD), and those who want to remain in their current home rather than downsize the value of their property in order to release capital.
Reasons to consider an equity release include home improvements or adaptations, going on a special trip or vacation, purchasing a new car, boosting overall retirement income, or paying for immediate or future medical care needs. Many older people also find equity release to be a practical means for reducing inheritance tax liabilities for their family and for helping their grandchildren pay for post-secondary education. Despite the benefits of an equity release, it is important to remember that this method cashes in on the equity built in the home. Therefore, if the house is sold, the built up equity is lost and no longer available.