Financing Home Improvements with Equity Release Schemes

No matter how much we try to take care of our house, there is always something that needs to be repaired, fixed or improved. Home improvements can be quite costly especially for pensioners based on the fact that pensioners have limited income that is generally used to finance their daily living expenses. A new kitchen or bathroom will definitely take many years of pension payments to be able to afford. So, consider another option like your ability to release equity from your home.

One of the most popular routes for the over 55s to pay for home improvements is via equity release schemes. You can release equity from your home to pay for a new kitchen or bathroom or extension for a new addition to the family. Equity release schemes make it possible for pensioners to release capital that is tied up in their property.

The advantage of equity release schemes is that the borrower is not required to make any monthly payment. The borrower does not have to repay the capital amount or the interest amount. The interest charged by the lender is added to the balance yearly...hence the balance increases over time. This causes many borrowers to worry that eventually the balance will increase to an amount that they will not be able to pay. The fact is that equity providers make sure that you never borrow more than you can repay which means that the balance will never be more than the value of the property. This feature is called the no negative equity guarantee.

Eventually, when the borrower and his spouse dies or wilfully decide to move out of the house, the house is sold to repay the lender. If there is any money left after paying the equity release provider, that money is given to the children or beneficiary of the borrower.

Consideration should be given to the children of the borrower as equity release plans do reduce their inheritance so it is always wise to discuss with them first. Some children look for alternatives so that the house of their parents does not have to be sold to repay the equity release provider. In many cases, the children choose to repay the balance using their money to prevent their parents’ home from being sold.

As you consider alternative plans for using equity in your home also think about why you wish to use such an option. When you release equity from your home to improve your home it needs to be an improvement that will not only benefit you, but also increase the value of your home. In this way when the home is sold you can actually gain inheritance for your children.

The housing market can be volatile. Some years you may see an increase in your value. In the next you might see a huge loss. It depends on the economic situation in the UK and right now there is repairing going on for the economy and housing market. Housing prices are starting to increase, which can mean a better situation for you down the road.

Money can be taken out in an equity release for several reasons. No one can stipulate how you use the money. For some, taking it out for that once in a lifetime holiday is the greatest way they can use their equity. On the other hand it places a huge burden on the family if they wish to keep the family home.

As you consider the advantages and disadvantages of using equity for various expenses, think about the different types of lifetime mortgages available versus home reversion. Home reversion allows you to sell your home in exchange for tax free money that does not have to be paid back. If you are selling your home in the end anyway this might seem more appealing to you. Since you release equity from your home but do not owe a payment and live in the home rent free until you wish to leave it can seem more affordable.

You also have an interest only lifetime mortgage where you pay the interest on the loan for the lifetime remaining in your home. The principle or capital balance remains unpaid until you sell the house or the payment is made in full some other way. For some, having a mortgage with the potential of saving the house they live in is important. It makes the interest only option when you release equity from your home desirable. Other lifetime mortgages are not payable early and you do not pay interest, which means the full amount is due at the end.