Many property owners who are of retirement age may consider an equity release scheme because it will allow them to have a steady flow of income or regular capital coming into their home. It may sound too good to be true, but there are a few things you should know before taking the step into a release of equity release from your property. The first thing you should do is speak with an equity release adviser to enquire about equity release schemes currently available on the market. The market can change and limit what is available to you.
What an Adviser Does
The equity release adviser will come to your home or talk to you over the phone when you enquire about equity release schemes that may be right for you. The equity release adviser will go over all of the equity release schemes available and the pros and cons of each one.
Interest Only Loans
An interest only lifetime mortgage is an equity release scheme that you and your beneficiaries will benefit from. For instance, if you want to leave an inheritance for your children, you may want to choose an interest only lifetime mortgage as it will allow you to obtain most of the property.
It will involve paying the interest back on the loan each month like any conventional mortgage allows you to. The interest can be paid from your retirement pensions or state benefits, while you use your lifetime mortgage to pay your everyday monthly bills.
Disadvantages are that you must make the payment, you can only take out up to 70 per cent of the equity with most providers, and it is available as a lump sum payment. In other words you have to take all the money at the beginning of the loan agreement. If you find you are unable to pay the interest, it is rare but some companies allow a rollover scheme in which your interest only converts to a roll-up mortgage where interest starts to compound.
Lump-sum Lifetime Mortgage
You can also decide to just borrow just what you actually need. That way you can easily keep a check on the interest and keep as much equity in the property as possible. With a lump sum mortgage you have to take out 10,000 t0 15,000 pounds depending on the provider. The rest can remain as equity and protect your beneficiaries’ inheritance by leaving enough equity to take care of the lump sum payment plus accruing interest.
Drawdown Lifetime Mortgage
Drawdown mortgages allow you to borrow what you need right now, but leave the rest of the equity in an equity release account. In this situation you draw on the account as you need the funds. Interest accrues only on the amount of funds you used rather than the entire lump sum available to you. It is slightly safer than the regular lifetime mortgage, but you also do not make payments each month. For some it works the best.
Repayment of the Loan
There may be an early repayment charge; however, if you want to pay the capital and interest off early. If you happen to move, you may be able to transfer the loan to the other home. That way there won’t be any penalties, nor on death or moving into long term care. Also, if you decide to sell the home, you can ask for enough money, so that the interest is included and you won’t have to worry about paying it yourself.
Home Reversion Choices
Under home reversion you sell a part of your property in return for free rent and no mortgage at the end. It might be a more comfortable choice than taking out a mortgage that could wipe out the inheritance. Home reversion is an equity release. It just works by selling part of the home and then the rest of the home after death or when you move out. It can work for couples too.
With an equity release scheme, you can live in your home until you die or move into a permanent living facility, like a nursing home. The original capital plus compounded interest is only then paid in full, so you won’t have to worry about your children having to pay it. Also, if the value of the home increases, whoever still owns the home will benefit from it as with lifetime mortgage schemes you retain 100% of the ownership of the property. Always remember to enquire about equity release schemes with an independent agent for best product results.
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