With Equity Release Schemes, You Can Get Cash Today
The equity in your home is the market value less the loans and debts that you have already secured against it. An equity release allows you access to some of that equity in cash without having to sell it and/or move out of it. There are two basic types of equity release schemes that you can consider.
The two types of equity release schemes are home reversion plans and lifetime mortgages. In both cases there is a minimum age for taking advantage of them. How old can depend on the company you end up working with but it is generally over 55 years of age, in some cases older.
In a home reversion plan, all or part of your home is sold to an individual or company. The cash is usually paid out in one lump sum. You are then able to continue living in the home as a tenant for free or, sometimes, for a very nominal fee. Your residence can continue until your death or until you move. The amount you will receive depends on your age as well as other factors such as the value of your property.
Lifetime mortgage plans come in several options. For each one, you will still retain ownership of your home. The money is borrowed against its value and you still pay your mortgage each month.
One type is called a Roll-up Plan. This type of loan is received as either a lump sum or in a regular income stream. Interest will be added but you do not pay it until your home is sold upon your moving out or dying.
Interest is accrued on both the loan and all interest accrued prior so if you take the money in a lump sum, it can add up fairly quickly. If the roll-up mortgage is a drawdown one, you take the money in smaller payments either according to a regular schedule or as they are needed. In this case, the amount of debt will grow more slowly.
Drawdown equity release mortgages are amongst the most popular as they can significantly reduce the rolled up interest that would otherwise be added to the loan. A minimum initial lump sum of between 10,000 and 25,000 is usually set by the equity release provider.
A second type of lifetime mortgage is called the interest-only mortgage. In this case, you take payment of a lump sum and pay the interest on that loan each month. You pay back the amount of the loan when the home is sold. The danger with this one is that, if the interest rate is variable, you might experience difficulties making the monthly payment if your income is fixed.
Home income plans also involve being paid in a lump sum but this is used for purchasing an annuity to provide a regular income. The income is then used partially for paying the interest which is usually at a rate that is fixed. How you use the remaining income is at your discretion. When your home is sold, the loan is paid off. This type of plan is more advantageous if you are older rather than recently retired.
There is a lot to think about when considering an equity release. Make sure you understand all the fine points. And consider getting professional advice to determine the best course of action before committing.
An equity release allows home owners access to equity in the form of cash without having to sell or move out of their homes. We’ve got the super inside info on lifetime mortgage