It is essential to know the whole concept of equity release schemes before you venture in to the unknown. One of the main issues is to ensure that the financial providers you plan to use are fully regulated and the products they provide are fully compliant with the equity release market standards. These equity release plans permit you to release equity or tax-free money from your home without having the hassles of any monthly repayments. Many equity schemes are available to cater to your specific needs. But, each one of them comes with pros and cons. You should be fully aware of these before you consider the best equity release scheme to go for.
People over 55 years of age have financial issues which can be taken care of by an equity release adviser who knows all about lifetime mortgage schemes. Financial crisis and the need for money to fund the retirement years are making people believe more so in lifetime mortgages. This scheme allows you to release tax free cash from your home to spend or fulfil your wishes, without having any worries to repay them. The accumulated interest on per month basis on the life time mortgage loan is repaid in one large amount when the borrower dies, enters long term care or by selling the property earlier.
There are many advantages and disadvantages associated with a lifetime mortgage scheme;
Firstly, the advantages -
You can live life without any worries of monthly payments.
Even though the final balance of the equity release scheme is more than the value of the house, your beneficiaries will never owe anything over and above the value of the property.
Any rise in the estate prices would still benefit the property.
You can pay the equity amount any time as you want. There are no barriers on where you spend the equity released.
You can protect some of the equity in the property to ensure the property is gifted to any nominated heirs.
Some of the disadvantages are -
The inheritance you will leave behind will be severely reducedearly repayment fees may have to be incurred if the property is sold earlier than anticipated and can be up to 25% of the amount originally borrowed.
There is another lifetime mortgage scheme known as interest only lifetime mortgage, which is similar to the one above. However, this time you can agree to make monthly payments of interest to the equity release company. When the plan ends or when both partners die or go to long term care, the balance will still be the same as that originally borrowed, as long as the monthly payments of interest have been maintained. This is a great alternative to the concept of the roll-up equity release schemes whereby the interest compounds resulting in the balance escalating over the lifetime of the applicant.
Negative Equity Situations
You may be worried about negative equity even though you read your beneficiaries will not owe any amount that is above the house value. The reason behind this safe guard for your family is because the housing market fluctuates and interest accrues. The way your family is protected is through a negative equity clause in your lifetime mortgage contract. The clause stipulates that the payment and interest charged cannot exceed the full value of the home. Even if you live longer than you thought or your equity drops because of a value that drops you are protected.
Home Reversion Schemes
Under equity release schemes you also have home reversion plans. These plans are much different than the roll-up or interest only schemes previously discussed. With this type of plan you sell a portion of your home. You can decide how much of the home is sold: all or a small amount. The amount you sell is considered on the total value of the home and then broken into a percentage. You never receive full value for your home since the provider makes money from the eventual sale of your home on the open market.
The benefit is no repayment, no interest, and you get to leave an inheritance behind. The amount is guaranteed based on the portion of home you do not sell. You also get to live in the home rent free.
For further information on understanding equity release schemes, please call 0800 678 5159 where a lifetime mortgage expert can address any queries you may have.
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