Equity release is available to all property owners in Ireland who have reached the age of 55 and can be used to access cash that is tied up in a home. However, equity release should be carefully considered and researched, as it may not be the appropriate choice for everyone.
Explanation of equity release
The term ‘equity’ relates to the difference between the value of a property and the amount that the owner holds. For example, let’s say that a home is worth 500,000 Euros and the residents have a mortgage of 150,000 Euros. The equity in the property is, therefore, 350,000 Euros.
Under Irish property law, it is possible to release some, or all of the equity in a home. In many cases, when the owner reaches the age of 55, the mortgage is paid off and they have full equity.
Under an equity release scheme, that equity can be accessed either in full or partially. It can then be used for whatever purpose the individual wishes. Many use it as part of their overall estate planning and it is distributed among children. Reparation work to the home is another option, but it’s all down to the individual property owner.
How equity release works
Equity is the sum that a property owner would receive if they sold their home at that point in time. After any mortgage and/or associated costs are paid off, the amount remaining is the equity. If the homeowner wishes to gain access to some of that money but they don’t want to move, it is possible to acquire equity release.
A bank, mortgage company, or specialist equity firm will consider each application on its merits. If all parties agree, they will then purchase a stake in the property while releasing some of the equity. That equity is paid as a cash lump sum for the property owner to do as they wish.
Types of equity release schemes
Under Irish property law, there are two separate types of equity release schemes. The first of these is a lifetime loan. Under a lifetime loan, the property owner receives a cash sum as a tax-free loan. If they subsequently sell and move out of the property, the loan is paid off, plus interest. If the property owner dies before selling and moving on, the loan is paid back via the estate.
The second option is called ‘home reversion’. In this case, the property owner can sell a proportion of their home to release equity. The purchaser owns that percentage but the seller is allowed to continue living there.
The lifetime loan may be more suitable for those who are planning to move out of their home at some point in the future. Those who feel certain that they will not be moving may feel that the home reversion scheme is the better option.
Estate planning and retirement planning
As many property owners reach retirement age, they start to look ahead to financial planning for the remainder of their lives. There can be additional sources of revenue coming in via pensions while, for many, retirement will mean a reduction in monthly income.
As part of their overall retirement planning process, it can be a good time to consider equity release. Those who want a lump sum to take away any concerns over future income can use this as a solution.
Alternatively, there may be a need for a lump sum for emergencies such as property repairs. In many cases where equity release is accessed, the property owners are looking to help out their children with their financial affairs.
Estate planning is a longer-term issue and equity release can help in this equation too. The question of inheritance tax forms part of those overall plans and this is where a professional solicitor can advise as to whether or not this is a good solution.
There are points to consider with both types of equity release. In the case of a lifetime loan, there will be interest to be paid at some stage further down the line. With the home reversion option, there is the surrender of a portion of the property. In short, while there is a lump sum of cash available, there are conditions attached that have to be considered carefully in each case.
In both cases, equity release may be a logical step to take, but it’s a decision that can eventually be made after consultation with a solicitor. Banks, mortgage companies and specialist equity firms cannot be considered impartial bodies in such a process and that’s why it’s important to seek out an independent viewpoint.
Learn More About Equity Release
Taking equity release is a big decision and it should be considered very carefully. It should never be undertaken without seeking advice from an independent professional. Anyone looking into this should contact a solicitor.
McGinley Solicitors LLP were founded in 1988 and we now have 35 years of experience in dealing with complex matters under Irish property law. There are pros and cons when it comes to equity release and the path will not be ideal for everyone.
We will offer honest and impartial advice that will equip you with all the details that you need before making an informed decision. We have offices across Dublin and Donegal, and, after an initial discussion, we can meet to identify a clear road ahead when it comes to equity release.
To get things moving, please fill in the online contact form and we will get back to you. Alternatively, just give us a call. It’s an important financial decision and one that should not be tackled alone, so we are here to help.