Older homeowners are able to get their wealth by getting what they have in equity release schemes which are also known as lifetime mortgages or home reversion schemes. These schemes are especially attractive to those who have equity, but need liquid cash. When an individual uses their savings, or the pension fails to deliver as per expectations, one can request and apply for equity release through the property they already own.
Reasons why the demand is increasing: -
Equity experts have seen more elderly people using equity release to ease their financial concerns, since many of them are not comfortable with their current income. The cost of living has gone up, and they need to dig deeper into their pockets to finance their daily living expenses, which include energy, fuel, and food costs.
Conversely, like with the common residential mortgages, you do not have to maintain loyalty to one lender only. Home equity release schemes are more flexible these days, and are now more competitive with small changes in interest rates that make a big difference to borrowers. Today people are looking outside of their current equity release deals more often when their early redemption penalty period has expired. Many actually look forward to increasing the amount of money they release out of their remortgaged equity release plan.
The other common practise is home reversion plans, where you sell a percentage of the home to a lender who in turn gives you a lump sum. However, you do not have a fixed period within which to pay the money, and the valuation can be lower than the current market value. This kind of a scheme can also be expensive if you want to redeem it earlier, and you have to get back the property at the current market rates. You also have to pay additional fees that include legal fees and stamp duty.
Home reversion is not always a great way to begin your retirement. This is because if you want to switch you need to be worried about buying back the home before you can make a clean switch. You only receive a portion of the current value on your home. This portion is based on how much you sold, the value, and the percentage the provider is willing to give you for the home. When you buy it back or even after you pass and your family wants to buy it back, they will have to pay market value which is always more than you received in the payment.
However, a lifetime mortgage does not have a term, and all the payments roll out to the point when the house finds a buyer. The size of the loan depends on the property value, as well as the sex and age of the owners. Additionally, the loans have a redemption penalty for a fixed time, which makes them cheaper.
Bear in mind you have plenty of choices with lifetime mortgages if you find the home reversion option is something you do not like. With lifetime mortgages you were able to start at the age of 55, but with home reversion you had to be 65. If you are new and have yet to make a choice, these ages will also factor in to the choice you make.
If you have no issue with paying an interest payment each month for the availability of cash there is an interest only option. You can always roll this into a different product later based on your age and the home value. Always be aware that your choices are limited when the housing prices or values in the UK plummet.
The housing market is tricky because it can fluctuate. It is one of the reasons you may be seeking money now. You may have found that your house is losing value and you do not want to wait until it is undervalued by too much. The great thing about the lifetime mortgage is the negative equity clause you can make sure it has. This clause needs to protect you against the undervaluation of your home during the lifetime mortgage. If you do not have this clause, refinance to get it.
Before you make that equity switch, consider how much you will be saving, the redemption penalties, and the difference in the two. Consider the possibility of switching equity within the current lender prior to the big switch. Equity release schemes are designed to make your retirement easier, but you also want to make certain the changes you make to current schemes you have are proper. If you have yet to begin a release scheme then consider the different products on the market found at Equity Release 2Go.com.
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