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Equity Release - Important Questions Answered
Before entering into equity release, you need to be well informed about this type of financial product. Below are answers to some common questions that might make your task easier.
What is equity release?
Equity release schemes help retired individuals to raise money from their property. Firstly, the term ‘ equity’ describes the net value of your property. This is calculated by taking the current sale value of the property & deducting any mortgage or secured loans upon it.
The money raised is this equity tied up in the property. This money can either be withdrawn as a lump sum or in monthly instalments, the most popular of which is the former. A main feature of these equity release schemes is that you do not have to move out of your house and allows you to live your life in peace and financial comfort.
What are the uses of equity release plans?
The tax free lump sum released is yours to spend as you wish. The equity release companies do not place any restrictions on how the money is spent. You can make use of the released cash to supplement your retirement income and clear debts including mortgages, loans, credit cards, hire purchase & catalogues. Apart from this, you could also use the money to go on holidays, redesign your home, purchase new car or increasingly an popular reason which is to help children invest in bricks & mortar or get on the property ladder for the first time.
What are the types of schemes available?
Equity release schemes broadly fall into two categories – lifetime mortgages and home reversion plans.
With lifetime mortgages, you get a secured loan on the property. You do not have to make any monthly interest payments. Instead, the interest gets rolled up and is paid off when the property is sold. This would be on death of the last survivor or moving into long term care. Therefore, you can continue to live in your home for the rest of your life or until the time you move into a retirement or care home. The main difference between the roll-up lifetime mortgage scheme & the home reversion is that with the former, the property remains 100% in the name of the property owner.
With home reversion plans, you can sell a part or all of your property to the lender in return for a lump sum. The home reversion providers will therefore take partial ownership of your property to the extent of the percentage sold.
A lifetime tenancy is created so you can live rent free in the property for the remainder of your life. These are great equity release solutions for those who wish to guarantee an inheritance for their children & beneficiaries.
Why is life expectancy important?
The type of scheme chosen by you will depend on how long you are likely to stay in your house. The older you are, the more tax free cash you can raise.
With a lifetime mortgage scheme, the longer you live the greater the final balance will be. This is due to the roll-up & compounding effect of the interest on a year on year basis. Therefore,wholesale ed hardy clothes, you cannot predict how much equity will be left at the end of the day as you do not know long the plan will roll-up for.
On the one hand the advantage of home reversion schemes are that you can guarantee an inheritance for your beneficiaries. The reason for this is due to the fact that if a percentage of the property is sold, then the remaining percentage is yours to keep. Consequently, the estate will retain this percentage of the final sale value of the property & can guarantee an inheritance to pass down.