How do you use equity release to pay for care?

What is equity release?

If you are a homeowner who needs extra funds to pay for care, you might consider equity release.

Equity release is a financial scheme in which a person benefits from the value of their property and accesses a portion of the money tied up in it.

It can fund long-term care, medical expenses, or other financial needs.

You can use equity release to pay for care if your mortgage has been cleared or is almost paid off. The way equity release schemes work depends on your type of mortgage. 

How do equity release schemes work?

Many equity release providers are members of the Equity Release Council, which provides a no-negativity equity guarantee.

If you have a lifetime mortgage, your total debt is guaranteed to never be more than the value of your property. 

There are different types of release schemes, and all of them work slightly differently. Let’s take a closer look at some of the most common ones in the UK:

Lifetime mortgages:  If you have a lifetime mortgage, you can release a tax-free percentage of equity in the property while remaining the homeowner. 

Sale-and-rent-back schemes: Another way to release some equity from your home is to sell it at a discounted rate and continue living there as a renter for an agreed-upon amount of time. This gives you access to some extra funds without needing to move out. 

Home reversion plans: A home reversion plan involves selling your house at a lower-than-market price in exchange for a cash sum or a regular income. You then continue to live in your home as a tenant. 

How much equity can I release for care?

The amount of equity you can release to pay for care depends on various factors, such as your property value, your age, and your mortgage arrangement.

Certain release providers may also offer larger amounts for certain medical conditions. However, the ballpark figure of how much equity you can release in the UK is around 60% of the overall property value.

How much does it cost to release equity?

Before you can access an equity release scheme, there are a few fees and costs to consider.

There are also different options for interest, such as immediate payments or allowing it to roll up.

Overall, you can expect to cover the following: 

• Legal fees
• Property valuation fee
• Insurance fees
• Early repayment charges if you want to redeem the mortgage early
• Arrangement fee to the mortgage lender
• Financial adviser fee

In some cases, you may also need to pay a completion fee. This can be paid at the end of your equity release process or added to the loan.

How do I release equity for care?

Obtaining equity release to pay for care involves approaching your provider and applying.

Your application will be reviewed, your home value will be considered, and once approved, you can pay the necessary fees and access your equity.

The money will be deposited into your account, and you can make payments to your care provider.

If you don’t use all the money, it should stay in your account until further notice, but this depends on the nature of your mortgage arrangement. 

Do I need professional advice for equity release?

Professional advice is not only recommended for handling an equity release; it is a requirement of the Financial Conduct Authority (FCA).

This is because it requires considering, evaluating, and entering a contract, and the terms need to be fully understood and accepted. 

A professional mortgage broker or financial adviser can help you gain access to equity release to pay for care and ensure the process is as affordable and straightforward as possible. 

Seek expert financial advice

Using equity release to pay for care is an effective scheme for accessing funds for care or related medical expenses when you need it most.

Hiring a mortgage broker can help you make the right decision, expedite the equity release process, and ensure you navigate your financial situation for a favourable outcome. 

Let Unbiased match you with a mortgage broker to ensure you receive expert financial advice tailored to your unique circumstances.