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Posted by Edward Tirrell on

The Ultimate Guide to Equity Release: How does it Work?

How Equity Release Works

How Does Equity Release Work? Equity release is a type of mortgage that allows homeowners to borrow against their home’s value in order to fund retirement or other needs. It provides them with increased flexibility and freedom for their later years without having to sell or downsize because they have more than enough money to cover living expenses.

How it Works? First, the equity holder (or person holding onto the title) sells an amount of shares in his/her property which gives him/her access to cash from its potential sale price; then he/she collects this loan through monthly installments until it has been paid off. The borrower can also gain immediate cash by taking out a lump sum payment if required. There are two types of equity release products available- lifetime mortgages and home reversion.

How Does Equity Release Work

Lifetime mortgage works similarly to a traditional mortgage, with monthly payments and two types of interest rates- one fixed for the lifetime of the agreement, another that will fluctuate. Home reversion is designed to provide cash in retirement when property equity can no longer be drawn on; it works by transferring ownership rights back from borrower to lender and then selling home at market value.

Equity release enables homeowners over 60 years old who have large amounts of capital tied up into their properties due to rising house prices or other factors such as inheritance gains, pensions or savings keep paid off until they die without having to sell them because thye would not need these assets once dead. They are able to use this money during their later years without having to sell their property. It’s a good way to make sure that you leave your children or other inheritors with some money when the time comes.