You may have heard a lot about equity release programmes. These are being used to help people in their retirement years to have the money they want and need when they retire. They are programmes that use the equity in homes to get money out of it. It is possible using pension drawdown to release some equity or going with a different option. Find out what all this means.
Equity release programmes have become popular with pensioners as well, as it is another option when it comes to ways to have the money that is needed in the retirement years. There is also the option of using pension drawdown too to gain that money.
A pension drawdown is a fancy way of saying you have set up an annuity account in which you withdraw funds as you need them versus taking an entire lump sum of tax free money at the beginning of the equity release scheme.
Using these two different programmes can help individuals have the money they need when they retire, so that the retirement is comfortable and they do not need to change the quality of living in any way. No one wants to retire and have to lower their living standards.
Using equity release programmes allow people to receive a lump sum of money, monthly payments or a combination of both. However, they do not lose their home in any and they can still continue to live in their property.
Plus, there are no payments to be made either, so the money that is received does not have to be used to pay the equity back. Instead when the home is sold, the equity is paid back and the home owner receives the remainder.
Further Explanation of Equity
When talking about equity release schemes like pension drawdown or another form of equity release loan they are all under the concept of lifetime mortgages. You have a loan with compounding interest.
• The payment is not paid until the end, but the return is that the interest continues to add up over the years you have left.
Taking out a lifetime mortgage without repaying interest or any portion of the loan means it is going to balloon every 10 to 12 years. In other words, it will double due to the interest accrual. This can make it impossible to save any inheritance you intended to leave behind in terms of the house sale or the house itself. For most it is a matter of enjoying their retirement and family rather than worrying about the equity loss as inheritance particularly when the person has a life insurance policy to leave some inheritance behind.
• Interest Only Options allow you to pay on the account monthly while taking what you need out of the home. This leaves the capital sum the same.
While you do not have to choose to make monthly payments due to the various options in equity release, you can. With quite a few companies there are interest only lifetime loans on the market which allow you to release equity while keeping the lump sum payment the same.
• Drawdown is another way to save on interest and perhaps leave behind an inheritance.
With a drawdown scheme you get to use money as you need it. If you leave equity in the home this is equity you are able to leave for your beneficiaries. The interest charged to the account is only based on what you have used from the drawdown sum and not the full amount available.
As you can see there are plenty of options when it comes to equity release schemes. If you are not looking for a mortgage or a pension drawdown option, then consider what you may find with home reversion. If you will end up selling the home, but do not want a loan this is an alternative. Home reversion is a full or partial sale of the home. Yet, you still get to live in the home, rent free, and without the need to repay the release of equity. For some this is more comfortable than eventually owing a huge mortgage with interest. Speak with an adviser about these two types of equity release and the various forms of the lifetime mortgage option to see what will work best for you.
Whether using pension drawdown or another type of equity release, you have a way to ensure your retirement is comfortable. Conduct research, speak with independent advisers, and find a way to keep your standard of living as you wish too.