The term equity release refers to a financial product where individuals who own assets with capital value such as a house can access a stream of income or a lump sum of cash by leveraging the value of the property. The catch in this product is that the financier, or income provider, will be repaid at a later time, more often after the passing of the property owner.
Equity release is specifically designed for elderly citizens over the age of 55 who have no intention of leaving their real estate to an heir when they pass on. They can use an equity release financial plan to retire in comfort and dignity – or access huge sums of money for personal or business use – and never have to worry about paying back. In other countries including the United States, Canada, and Australia, equity release is known as reverse mortgage.
There are two types of equity release financial products:
This is when the homeowner sells a part of or the entire home to a reversion provider for regular payments or a lump sum payment. They will however continue to live in the property rent free until they die but must agree to insure and maintain the property.
In this case, the homeowner takes out a mortgage secured on their main residence property while retaining the property ownership. They have the option to let the interest roll-up or make repayments of the loan amount and accrued interest.
Equity release is an ideal product for retirees with limited options on what to do with their homes or property after they die. Note, however, that it is not the ideal financial product for all people; there are specific requirements that an applicant must meet to qualify for equity release.