If you are keen to supplement your pension with a little extra income but, in the past, you have shied away from equity release because it seems too risky an option to contemplate, now might be a good time to reconsider this reticence.
While it is true that there are some disadvantages that come with taking on an equity release policy, it is also the case that many of these can be easily avoided or resolved if you choose your policy carefully. Critics of this kind of scheme often cite the fact that equity release significantly detracts from your deceased estate, for example, and also draw attention to the dangers of saddling your next of kin with debt in the future.
However, both of these drawbacks can be easily dealt with. In order to ensure that you leave your family some kind of inheritance, make sure that the policy that you choose has a clause stipulating that some estate will remain untouched and be passed on to your next of kin.
A fear that the size of the loan you take out will eventually grow to be greater than the value of your property is not entirely unfounded. However, again, this is an avoidable outcome. Sign up for an equity release policy in which you pay off the interest accumulated in monthly instalments; this will ensure that the loan remains the same size over time.
Various options exist for releasing equity from your home:
• Home reversion
• Lifetime Mortgage Roll-up
• Drawdown Lifetime Mortgage
• Enhanced Lifetime Mortgage
• Interest-Only Lifetime Mortgage
Each type of release plan has different drawbacks and benefits. If you are in a situation where you have extra monthly income the interest-only lifetime mortgage is most beneficial regarding loan disadvantages. You take this disposable income to pay for the interest rate on a monthly basis eliminating all but the principle of the balance for the loan. Most individuals take out equity because they lack enough monthly funds to pay their finances.
For this reason you have other options like the roll-up. This is the standard choice available to you in lifetime mortgages. You need to be 55 or older to qualify for this loan. If your application is approved you will receive a lump sum, lump sum with monthly instalments, or monthly instalments from your account. You can choose who you wish to be paid. Many like the drawdown equity release scheme in which you gain a lump sum then monthly instalment or just monthly instalments because you only pay interest on the release of money you take out versus the entire sum.
Enhanced lifetime mortgages are for special needs. Typically, a homeowner has a shorter life expectancy due to age or a difficult illness. There have been instances in which an enhanced mortgage was awarded to someone younger than 55 because of an illness. It is rare and case by case.
Home reversion is not a loan like the lifetime mortgage plans. Instead, you sell a part of your home or perhaps all of it. You decide on your comfort level for the amount you sell. You have the option of releasing all the equity or not in a lump sum. Like lifetime mortgages there are monthly instalment plans. The difference with this release of equity scheme is age. You are required to be 65 years or older to begin this process. Many find this option safer for inheritance.
Since you retain a portion of your home that can be sold after death, your heirs are almost guaranteed a certain percentage upon your death. The percentage can be smaller or larger depending on the housing market. If your home increases in value there is more inheritance for your beneficiaries.
Lifetime mortgages are based on the amount of value your house is at the time of sale. As with fluctuating values, there is always room for reduced inheritance with no guarantee in the lifetime mortgage plan. The ideal way to ensure there is something left is to take no more than 50% of your home’s current value in equity.
In short, equity release is a widely varied market today. It is possible to find policies that safeguard against all manner of risks so that you can enjoy a happier, well-funded retirement. All it takes is a little research of the market, your situation, and a family conversation to determine what the best solution is for your circumstances. Every homeowner has needs and many can find a solution in the release of equity.
Our clients are satisfied with their new lives!
National Equity Release Pension Conference, Bath Street, Bakewell, Derbyshire, DE45 1BX.
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