Capital release plans are designed to work until the death of the last borrower or when the last borrower transitions to long-term residential care. At the end of the plan, the principal and interest accrued will be reimbursed to the lender. Most people who get a capital release use a life mortgage. A capital release mortgage involves a lender giving you cash in exchange for a portion of the proceeds from the sale of your property later.
But unlike a traditional mortgage, which you pay within a certain period of time, a capital release loan is not settled until you leave your home. A home equity loan is a second mortgage, that is, a debt secured by your property. When you get a home equity loan, your lender will pay a single lump sum. Once you have received your loan, you start repaying it immediately with a fixed interest rate.
This means that you will pay a fixed amount every month for the term of the loan, whether it is five or 15 years. This option is ideal if you have a large and immediate expense. It also comes with the stability of predictable monthly payments. In most cases, your capital release plan will have to be repaid within 12 months of your death.
The first step is for your beneficiaries to contact their lender, who will ask you for a copy of the death certificate and the document of succession, so that they can contact the executors of their estate. Your lender will then contact your executors and ask you how they plan to repay the plan, either through the sale of your property or other means. You may be able to accept the money you release as a lump sum or regular smaller payments, or both. Your advisor will explain all the options available to you and will be able to provide you with a personal illustration so that you can fully understand the costs involved in your capital release.
Before starting a capital release plan, you should be given a clear and precise explanation of what your capital release plan entails. FCA rules say that capital release companies must take reasonable steps to ensure that any capital release product they recommend to you is right for you. By using a firm that is a member of ERC, you will have more security measures to ensure that the release of capital is a realistic option for you. To understand all the characteristics and risks of a Capital Release plan, request a custom illustration.
If you think you can return your plan payments before the end of the natural term, you should discuss it with your capital release advisor. If you are considering hiring a capital launch product, you should seek financial advice from an independent financial advisor. The Equity Release Council, which is the industry's trade body, insists that all lifetime mortgages include a “non-negative capital guarantee”. Home equity is the portion of your home that you have paid from your ownership share, unlike the lender's.
If you only want to take out a small loan and can cover repayments with your regular income, an unsecured loan may be cheaper than a capital release plan. Many websites have capital release calculators that ask you to provide your personal details before they give you more information. This exemption allows you to pay your capital release ahead of time when you move home, without incurring any early repayment fees. The benefit of a reduction loan is that interest is only charged on money that you have already released from your capital.