Difficult times, emergency situations and unforeseen circumstances come upon us all. In most instances when this happens, we are in a situation of being cash poor and property rich; well, at least for the older and more settled members of society that is. Equity release schemes are a practical solution for homeowners to maintain a constant cash flow, without the encumbrance of having to pay tax for it. It is a great way of raising an income to spend as the need arises. With equity releases, you only release the equity and continue to live in your home.
Equity release schemes are a practical solution to be considered by many who find their own investments tied up in property, yet they find themselves without cash to spend. Mostly, the older people are full homeowners of their properties and do qualify for equity release plans. The scheme allows you to turn some of the equity in your home into cash.
Two types of equity release schemes are common. Lifetime mortgage is one of them. It allows you to borrow money without having to worry about repaying the loan. The lender does not own your property and you continue living in your home. The lifetime mortgage is only paid off when you sell the property, move out of the property permanently or die.
The other type of equity release is the home reversion scheme, which allows the home owner to sell a percentage of his or her home. The home owner continues to live in the home and upon selling the property or death the percentage sold will then go to the home reversion company and the remainder to the homeowner’s estate.
Exploring Lifetime Mortgages in Detail
There are currently five products on the market under lifetime mortgage, they can be found here. You have to qualify for this mortgage based on age and quality of your home. Your home needs to have at least £70,000 in value and you have to be at least 55 years old. Each will be discussed for their main quality:
• Roll-up mortgage is a type of lifetime guarantee where you take a lump sum of cash. You have compounding interest that accrues until the loan is repaid.
• Fixed lifetime mortgage is a special product in which owner and provider decide upon a specific amount of interest before the plan begins. This provides a set balance and interest to be repaid at time of death or move.
• Drawdown mortgages give you a smaller lump sum than the other two listed above. This lump sum helps you initially, but leaves more equity in your account to be drawn on when needed. You can take as much of what is available as you need. You only accrue interest on the amount you use rather than the full amount available in your equity account.
• Interest only lifetime mortgages are the only type which requires you to make a monthly repayment. Actually it is a monthly interest payment, where you have the original borrowed amount left unpaid until the end of the agreement.
• Enhanced lifetime equity releases are special products for those with an illness that will reduce their life expectancy. It is awarded based on a health questionnaire in which you gain a larger lump sum than all other options. You still accrue interest until the end of the agreement.
Exploring the Differences in Home Reversion
Home reversion is not a loan and you must be 65 years old to take out this product. For the sale of your entire home or just a portion of it, you receive cash. This cash can be used in any way just as the lifetime mortgages. You can sell more of your home when you need more cash. The important detail about this option is the lifetime tenancy agreement. This agreement ensures free rent for life in your home. For some the burden of paying a mortgage off even in death through the sale of their home is too much. To alleviate this concern providers created the home reversion concept that can also protect your beneficiaries’ inheritance simply by keeping a portion of the home unsold.
As good as equity release schemes sound, it is important for one to consider the consequences carefully before committing to them. Once committed, one will no longer be able to bequeath all their estate and property to members of the family upon death. It is also important to choose an equity release scheme which better suits your needs. Wisdom is important when it comes to these plans.
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National Equity Release Pension Conference, Bath Street, Bakewell, Derbyshire, DE45 1BX.
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