Equity release is an excellent way for people to access the equity which is tied up within their home, but who does not wish to sell, in order to do so. However, it is important to fully understand what equity release is and what the alternatives are before proceeding further and committing to an equity release scheme. Equity release explained is essentially a way in which a provider releases either a lump sum of cash or an ongoing financial income to a person, and in exchange, a legal charge is put against the property.
It can be either in the form of a home reversion or a lifetime mortgage. For both options it is not necessary to make any repayments. However, the interest on the mortgage is rolled into the amount owed and therefore over time the balance owed increases.
Further Exploration of Home Reversion
In order to answer the question through our equity release explained article, it is important to know the difference between lifetime mortgage and home reversion. A home reversion plan does not require any repayment at all, ever, even in the future. It is a sale of your property. Most opt to sell a portion of their home and retain a portion for later sale or for inheritance. The home will always be sold completely in the end; however, you get to choose how much is sold for cash to live on. The home is sold to the buyer and then the buyer resells it to get a profit. For this they provide a lifetime tenancy agreement where you pay no rent, live in the home until death or you move permanently to a long term care facility.
Explanation of Lifetime Mortgage
Lifetime mortgages are different because they do require repayment, eventually. It is a loan and thus it has interest compounding onto the actual amount loaned to you. There are several plans under the umbrella term lifetime mortgage.
• Lump sum: a product in which you receive a onetime, lump sum of tax free cash with interest accruing until death or when it is paid back.
• Drawdown: you have an equity account to withdraw funds as needed.
• Impaired: also known as ill health or enhanced this mortgage offers a larger lump sum paid out due to an illness that shortens your life expectancy.
• Interest only: the only option where you make payments on interest throughout the life of the loan.
An alternative offered is the Retirement Home Plan. Like an equity release scheme it allows the customer to access equity within their home. However, it differs from an equity release scheme in that monthly repayments are made on the interest. This means that over time the balance of what is owed will not increase.
The Home Retirement Plan allows its customers a clearer sense of what they own within their own home and therefore what they can leave as an inheritance to their families. This may give greater peace of mind in that it can seem more manageable and predictable.
In order to fully understand the implications of an equity release scheme it is important to ask for a financial forecast of how the balance will grow over time if either the housing market falls or indeed grows. You can get this from your independent financial adviser. It is always best to go with an unbiased individual well educated in equity release products. In this way they can find the product that is right for you based on your needs. Brokers tied to a company will be able to discuss other products, but their ultimate goal is to sell you the product for the company they work for. This means unless you ask they will not tell you about other products on the market. You would have to do your research and ask pointed questions. Additional a tied broker will be unable to sell you a different product.
Now that equity release explained has provided answers to you it is time to decide what your next step will be. There are times when you are not ready to speak with an adviser. For those times you have articles and equity release calculators which can help you do research and learn whether a lifetime mortgage or home reversion is right for you. Being armed with as much information as possible is the best way to understand the talks, protect inheritance, and get the income you need for a comfortable retirement life.