What is a Lumpsum Equity Release?

Equity Release can be a very confusing product if you are just starting to explore your options. There are two Equity Release products available in the UK and the differences between each provider vary widely.

Lumpsum Equity Release is available across both types of Equity Release products and allows you to receive the funds from your equity in full. You may not be aware that in some cases you can opt to have your Equity Release paid as regular instalments rather than take it all at once.

Let’s explore lumpsum Equity Release in more detail.

Lumpsum Equity Release Products

All Equity Release products in the UK allow you to receive the money all at once in a lumpsum payment. The amount you will receive is wholly dependent on your personal situation including the amount of equity you wish to release and the property value.

Lifetime Mortgages are the most common Equity Release products in the UK with 9 out of 10 borrowers opting for a Lifetime Mortgage. You may find a Home Reversion Plan is better for you though, so this guide examines both.

Home Reversion Plans

A Home Reversion Plan is always a lumpsum payment because the plan provider is buying the equity from you up front. The provider does not charge interest on the amount they release as you are not borrowing the money. You are however borrowing the right to your property and can live in your home until you die or need long term care.

In some respects, a Home Reversion Plan provider is similar to cash house buying companies and the amount they will offer for your equity percentage will be much lower than market value.

Lifetime Mortgages

Lifetime Mortgages operate more like a traditional mortgage but with some key differences. You are borrowing the money at market value against the equity percentage you release and there is interest charged on the loan. However, like with a normal mortgage, you still retain 100% ownership of your home.

Unlike traditional mortgages, there is no mandatory monthly mortgage payment and the loan will need to be settled when you pass away or move into long term care. Interest on the loan rolls up if you decide not to make any overpayments and you may find that at the end of the loan, the whole property value has been taken by the Lifetime Mortgage.

Contrary to popular belief, you do not need to pass away or go into long term care to repay the loan and have the option to pay the debt, or a portion of the debt, off penalty free if you choose an Equity Release Council approved lender.

Your next of kin can also settle the debt and retain the property if they have the funds to do so.

Lifetime Mortgages offer lumpsum payments and in most cases also allow you to set up a drawdown facility to receive the funds in regular payments

Which Equity Release Product is Best for Me?

The Equity Release product most suitable for you will largely depend on your personal needs and financial situation. To obtain an Equity Release product you must have specialist advice from an Equity Release adviser. They will be able to assess your needs and make a specific recommendation for your circumstances.

What Can Equity Release be Used For?

Equity Release can be used for any purpose you choose. Lumpsums are commonly taken by borrowers to:

How much you will receive from Equity Release is dependent on the percentage amount of equity you release and your total property value.

Pros of Lumpsum Equity Release

Lumpsum payments are popular with Equity Release borrowers as it allows them to manage their money and spend it as they see fit.

If the purpose of the Equity Release is to make a large purchase or make a significant payment, a lumpsum is the only appropriate way to receive the money.

Once the lumpsum has been made, you are under no obligation to spend the money and can invest or save it for a later point if you wish to.

Also, taking the money upfront in a lumpsum guarantees access to the funds. Whereas, drawdown facilities can be removed under certain circumstances.

Cons of Lumpsum Equity Release

Some borrowers prefer to set up a drawdown facility as they feel the funds will be needed over a period of time and they may not be able to budget well if they receive the money in a lump sum.

For borrowers who want flexibility about how they receive the money with the ability to draw down further amounts tax-free in the future, a lump sum will be an unattractive option.

Crucially, if you borrow the maximum lump sum available to you upfront, interest will be chargeable on that entire sum. You should only ever borrow what you need. If you believe that the funds may just sit in your account and accumulate interest, a drawdown facility may be more suitable for you.

Difference Between a Lumpsum and Drawdown Facility

The key difference between a lumpsum payment and a drawdown facility is how you receive the funds from your Equity Release.

If you take a Lifetime Mortgage you will be asked how you wish to take your money if the lender offers both drawdown and lumpsum options.

Can I Take Both a Lumpsum and Set Up a Drawdown Facility?

Yes, some Lifetime Mortgage providers allow you to take a combination of a lumpsum and instalments.

For example, you may wish to use part of the funds to build an extension on your property and retain the remaining funds for ongoing living costs as and when you need them.

Speak to an Equity Release Expert

Equity Release, particularly Lifetime Mortgages offer a lot of flexibility to borrowers. They are however specialist mortgage products, and you must seek professional advice before taking one.

Having expert advice makes the Equity Release process much simpler and will provide you with greater insight into how the product works and ways you can receive funds.

Boon Brokers is a Whole of Market Mortgage, Insurance and Equity Release Broker. Boon Brokers provides fee free Mortgage and Equity Release advice.

Book your initial no-obligation Equity Release consultation with Boon Brokers today.