Equity release is a term that retired homeowners who are in need of an additional source of income, or capital should be aware of. Retired homeowners are now given the opportunity by equity release providers to release equity from their homes. Homeowners who are interested in equity release can choose from a number of products now on the market. The question becomes how to ascertain which will be the best equity release schemes for your individual need.
A homeowner who does not want to sell his home can choose a lifetime mortgage which allows them to obtain a home equity loan from an equity release provider by using his home as collateral. In order to be eligible for a lifetime mortgage, the homeowner must be of a certain age. In most cases, they must be older than fifty-five years of age. They must also be the owner of a property that is worth at least seventy thousand pounds. Homeowners are never allowed to borrow more than the value of their property. They are also not allowed to borrow an amount that is equivalent to their property’s worth. The reason for this is simple - inheritance.
There is also the need for profit on the behalf of the provider. If you borrow what the home is worth, then there is a potential for the interest to exceed what the home is worth. Since you make no payments it generally puts no profit in for the provider.
In order for a lifetime mortgage to be repaid, the property will have to be sold. This normally happens when the homeowner dies or is no longer capable of remaining in the property. If the amount borrowed is higher than the value of the property, the sales proceeds from selling the property will not be sufficient to repay the equity release provider. The amount borrowed cannot be the same as the value of the property because of compounding interest. The sales proceeds from the property are not only used to repay the loan but it is also used to pay the accumulated interest. This does not apply to an interest only lifetime mortgage as the balance remains the same.
The difference between an interest only lifetime mortgage and a lifetime mortgage is that the interest only lifetime mortgage allows the homeowner to pay the interest amounts on a monthly basis. This means that the sale proceeds from the property will only be needed to repay the initial loan sum which means that the amount remaining can be left as an inheritance for the children of the homeowner.
There are four lifetime mortgage choices available to you today. These can change as the market changes. You know of the main lifetime mortgage and interest only option. A third is the drawdown mortgage. This gives you a lump sum in a smaller amount and then instalments for the rest of your life as needed. You pay interest only on the amount you remove from your equity account. It can help you save a little money for family and at least the interest does not add up as fast as some of the other schemes.
Home reversion plans are also common among retired homeowners. In exchange for an additional source of income during their retirement, they sell a part or all of their property. They are however allowed to remain in their property until they die or move out. Home reversion plans are not as common these days as the guilt of selling part of your house to the reversion provide casts a shadow over taking one of these schemes out.
For home reversion plans you need to be 65 years of age. You can always sell your home in parts when you go with this option. For example if you sell a small part at age 65, you could sell another in ten years when you need more money. This at least provides you with options. It also determines the amount of inheritance you leave. Since you do not have to sell the entire home, you could leave inheritance behind.
As you look for best equity release schemes, you need to compare the different products. After all if you are comparing products and providers you can find the best one for you. Sometimes you might find a product that looks right for you but it turns out to be less than you hoped for after talking with a financial adviser. You certainly do not want to feel guilt from making the wrong decision, so keep your family apprised of your choices and speak with a financial adviser which can be found at EquityReleaseHome.com.
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