Buying an equity release is a complex decision. It requires a good understanding and knowledge about all the terms and conditions associated with an equity release scheme. People are quite confused and seek around to find answers for some of the most important questions surrounding equity release. Look at frequently asked questions for simple answers. For most of the people, buying an equity release is a onetime decision so everyone wants to know and understand the impact of buying an equity release on the rest of their life.
The first and the most frequently asked question is whether a prospective equity release buyer will qualify for an equity release scheme. There are certain basic clauses such as minimum age of the person, standard quality construction of the property, health status of the buyer etc. Unless and until a buyer fulfils the minimum eligibility criterion, the buyer is not eligible to take an equity release scheme.
• Lifetime mortgages require you to be at least 55 years of age
• Home reversion mortgages ask that you are 65
• Lifetime mortgages are generally not offered past age 75
• Home reversion tends to be given before a person becomes 80
• The house is going to be sold in most cases for payment on the loan and certainly with home reversion. This means the home will either need repairs with the money attained or will not qualify if it is not of proper construction.
• Your health could provide a larger lump sum if you have an illness
• Life expectancy cannot be calculated but to ensure someone can afford to pay the principle balance back and compounding interest there are certain health questions to determine if the person will or will not live longer.
The second frequently asked question is about the amount that can be released and whether the equity release buyers should release the entire amount in one go or take a cash reserve and withdraw the money according to the needs by taking an equity release drawdown scheme.
Specifics for Amount Released
• The amount of money released is related to the value of your property
• It is also a concern of your age. A person who is older or who has an illness that lowers longevity can often get more money in a lump sum.
• The equity released is a percentage of the home value. If your home is worth £250,000 and you are 70 you may be able to get 55% of your home value. Standard lifetime mortgages are between 22% and 60%, but there is some leeway depending on the provider.
• Home reversion is a percentage of the home or all of the home that is sold. It means if you sell £250,000 of the home, you still only get a percentage based on the potential increase of value for your home over time and your life expectancy.
Another frequently asked question is regarding the valuation of the property and the method used by the lender to value their property for equity release. An appraiser of the provider’s choice is used to assess the house value. You can also hire an independent person to ensure the provider is being fair in their assessment.
Most of the potential equity release buyers are also concerned about their state benefits and want to know whether they would be eligible to enjoy the same even after taking an equity release. The money is tax free and does not interfere with your state benefits. Your pension is a separate concept from a lifetime mortgage or home reversion. It has been earned and cannot be taken away.
Most of the people who had a bad credit history also want to know whether they can take an equity release scheme or not. Bad credit can be an issue in terms of interest rates for lifetime mortgages; however, it will not stop you from getting an equity release plan.
Tax liability is not a concern because the cash lump sum is tax free. It is not counted as income or capital gains.
Some of the other most frequently asked questions include who will be the legal owner of the property after taking an equity release, what will happen to the property after their death or when they permanently move to a long term care and how it affects the property inheritance for their beneficiaries. It is highly recommended to ask as many questions as you have and are completely satisfied before buying an equity release scheme.
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