An equity release mortgage is a way for you to raise money against the value of your home, which is basically a loan with no regular repayments. The provider which loans you the money will be paid back when your property is eventually sold. Such equity release schemes can provide you with a lump sum of cash as agreed upon or you can opt for a plan that gives you regular payments for income such as a drawdown lifetime mortgage.
There are two main types of equity release mortgage plans out there that you can choose from. You can either go with a lifetime mortgage or a home reversion plan. A lifetime mortgage is when you take out a loan against the value of your property but you still have 100% ownership of the property. The second option, which is a home reversion plan, is where you sell off part, or all of your home to a home reversion company. With this option you will have to give up part of or full ownership of your property accordingly.
You want to find an equity release plan that will allow you minimal set up costs but that will give you a maximum pay out. After all, most people want to get the most out of anything they do in life. As it is a long term financial plan, you need to make sure that an equity release is a good option for you. Remember that it is a big commitment and it will also reduce the inheritance you leave behind for your family as your home will be sold to pay the loan. Therefore, the golden rule is to obtain the maximum facility, but only take what you need initially. This will decelerate the roll-up effect of the interest. This method is opposed to taking the full amount immediately & seeing the future balance run away with itself. Always get independent advice on this area as this holds the key retirement solutions to a better inheritance for your beneficiaries.
The plus side is that you will be able to receive money from your home while still living in it and/or there will be money from your home left behind for your family when you pass away if that is the option you choose.
The Advantages List for Lifetime Mortgages
• You receive tax free money in a lump sum or drawdown future payments.
• You have 4 lifetime mortgage options to choose from.
• The money you use can be on anything from home improvements to holidays.
• You have extra capital/income to live on during a tough situation.
• You still own your home categorically
• There is a protection clause that will not make a negative equity situation if your home loses value, or if the balance ever supersedes the value of the property
• You can be as young as 55 and take out a lifetime mortgage.
The Disadvantages of Lifetime Mortgages
• Unless you have a life insurance policy designed to cover your home mortgage, you will need to sell your home to repay the loan and its compounded interest.
• Your children may not have an inheritance depending on the amount you borrow and the interest that accrues.
• The balance s accrues on a compounded interest basis
• They offer poor value for money if property values stagnate or fall
Home Reversion Differs
For home reversion you need to be a minimum of 65 years of age. You also sell a portion of your home, or the entire home. You do not owe any money at the end of your life or the agreement; however, you also do not own your full home. You will live in your home until you decide to move out under a lifetime tenancy agreement which stipulates you do not have to pay rent or ever move out. Your spouse can also continue living in the home if you pass on as long as they are named in the original contract.
Comparing Equity Release Plans
It is clear there are some advantages and disadvantages to both lifetime mortgages and home reversion. In the end you may have to sell your home under both deals. The biggest factor with regard to these options is the payout percentage. Given that you are living rent free under home reversion you typically receive less of a payout for the portion of home sold than you can receive in lifetime mortgage options.
If you choose drawdown lifetime mortgage you can use a sum of money when you need it by drawing on an account. These are much more flexible than the home reversion; however check out the Bridgewater Secured Escalating Release Plan where regular payments can be received over a number of predetermined years. With a lifetime mortgage you only pay interest for the money you withdraw rather than the entire sum available in terms of interest. This can be easier to live with than selling your entire home due to an unaffordable mortgage payment in the end or selling it before you move on to a new home or pass on.
An equity release mortgage can be a great solution to problems with cash flow later in life. If you are considering taking out an equity release on your home, you definitely want to make sure that you have a lot of advice and support in order to avoid any hidden costs and find the best deal available to you. Consult the Unbiased website or leading equity release brokers such as Equity Release Supermarket to help with making this massively important decision.
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