As a great number of people are approaching retirement, they are facing having a reduced income while still having debts which are lingering. Many retired people have found their disposable income compromised by credit card balances, overdrafts or bank loans. Many conventional avenues of finance such as secured loans can become closed to retired people because of their age and restricted income, which can make restructuring their debt difficult. It is for this reason that many retired people are considering equity release as viable debt management solutions.
What is an equity release mortgage?
Equity release schemes and mortgages have been specifically designed for the over fifty five age group. They allow home owners to leverage against the value of their home to gain a lump cash sum or additional income. These funds can be used for any purpose including as debt management solutions. This can allow the home owner to pay off any outstanding debts relieving the financial pressure on their reduced fixed income.
The benefit of equity release as debt management solutions
The main benefit of equity release as debt management solutions is that most plans require no monthly payment. The balance of the loan attracts interest but the interest charges are usually compounded on to the balance of the loan. This can dramatically affect the balance, allowing it to double approximately every eleven years. However, the total balance of the loan is not due for repayment until after the home owner has passed away or moved into a facility for long term care. At this point, the property is sold and the proceeds used to pay off the loan. If there are any funds remaining, they are then distributed to the beneficiaries of the estate in the usual manner.
These types of debt management solutions can allow the home owner to adjust to having a fixed income without worrying about meeting financial commitments to service their debt. Any funds remaining after paying off the debt can be used for supplementing their lifestyle, making purchases or financially assisting family members.
The disadvantage of this type of arrangement
Most people consider the main disadvantage of this type of plan is the impact it can have on the home owner’s potential estate. Obviously allowing interest to accrue and compound can significantly increase the balance of the loan. Therefore after a great number of years, there may not be any remaining equity left for the beneficiaries. However, the equity release industry is heavily regulated to ensure that no equity release customer leaves a property debt to their estate. This provides great reassurance for those worried about leaving debts or unpaid bills to their relatives. They can use the equity tied up in their home to enjoy a more comfortable retirement.
Obviously the disadvantages should be carefully considered and weighed against the advantages before deciding to use equity release as your debt management solutions. Equity release advisers are trained to assist home owners in exploring other potential options and will actively encourage home owners to discuss their plans with their families and beneficiaries before proceeding forward. There are some plans which offer the option of making monthly interest payments rather than allowing the charges to compound. This can give a greater amount of control over the balance of the loan to the home owner, but it would require sufficient disposable income each month or a beneficiary willing to cover the costs and protect their inheritance.
Many people consider equity release as their debt management solutions because of the reassurance that no monthly payment is needed and they retain the right to live in their home for the remainder of their lifetime. This can allow home owners to experience a greater degree of financial freedom, released from the worry of mounting debts which they would struggle to repay on their fixed income. In this current economic climate and with a rising debt level in the UK, it is certainly considered a valid method of debt management. However, equity release is a serious decision as it is a long term commitment with long term financial consequences. It is worth taking the time to fully explore all your options before making a commitment to proceed forward with an application. Experienced and professional equity release advisers will be able to assist you in exploring these options and locating the best possible deal suited to your circumstances and requirements. This will enable you to move forward confident that equity release is the best of the debt management solutions available to you.
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National Equity Release Pension Conference, Bath Street, Bakewell, Derbyshire, DE45 1BX.
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