The current economic crisis has affected many people in different ways. For some, it may be that banks are simply not lending them money for a mortgage, whilst for others unemployment may now be an issue. One group of people that have been affected, are those that took out private pension schemes. It may very well be, that the money that they thought they would be receiving upon retirement has been greatly reduced, or in some unfortunate cases, no longer there at all. It is time to turn towards equity release as a solution.
The Equity Release Solution
There are some solutions for people in this category, though, and one of those is in equity release. The basics of equity schemes are that people who own a home have money tied up within it, and that it may be wise for them to get hold of some of this money whilst keeping and continuing to live in the house.
As with any investment or financial decision, it really does take some looking into. It may be that the company you use to release some of the property’s equity own a percentage of your home, which is repayable at some point.
The Nuts and Bolts of Schemes
Now that you have the basics it is time to start delving into the actual products by name. You have home reversion, which allows you to sell a part of your home. You could sell the entire home. It depends on the amount of money you need in terms of how much you sell. It is also based on whether you feel comfortable with the entire home sold. You may want to retain some control to make certain you are safe with your scheme, although safety is not an issue, peace of mind is. You will have a lifetime tenancy agreement. You also retain some portion to sell if you need more money released later when you do not sell the entire home.
Lifetime mortgage is a different product altogether with more options than home reversion. In other words, you have more types of mortgages than just one. The idea behind this type of scheme is for you to take out a mortgage where the repayment and full interest payment is not due until your death. If you move to an assisted living facility, repayment would also be required. The point is you get to retain full ownership of the home, but you take on a mortgage to be paid later on.
Differences between your Options
Your age is going to determine if home reversion is available. You see, with lifetime mortgages, all you need to be is 55 years of age as the youngest homeowner, meaning a person who has the right to sign a loan on the house. For home reversion the youngest homeowner age is again used, but you must be at least 65 years of age. If you are over 65 then both options still exist.
The qualification of home value can also differ, but this is more widely spread as company to company the amount of home value you need to have could vary. The starting amount is always going to be £60,000 and go up from there depending on the mortgage company of choice.
Calculating the Amount Released
Before speaking with an adviser or signing up for the first equity programme you come across, it is very important for you to examine your options via calculations. This tells you whether you can actually get the money you require from the loan or home reversion, as opposed to spending hours with a broker to find it is simply not possible.
With a calculator you use your age as the youngest homeowner and the property value. For lifetime mortgages the average, competitive interest rate is then used. It provides you with a maximum amount based on your life expectancy and home value called the loan to value percentage. You do not have to take the maximum amount, but it is the value of what is provided.
For home reversion you use age and home value too, but you are telling the home how much of a percentage of the home you want to sell, thus it tells you what you would receive for the portion you want to sell.
Equity release schemes are particularly suitable for those people who have no dependent offspring and who are not overly concerned with leaving an inheritance of the maximum value possible. Seeking independent financial advice before going ahead with such a scheme is always highly advisable.