Equity Release - AN INSTANT Guide to the Different SchemesPosted by Lohse Mcintosh on May 18th, 2021 Equity Release is the term used to describe a financial solution that's available in the UK for individuals who are 55 or over. The word itself covers the financial sector, with Equity Release Schemes, Lifetime Mortgages and Home Reversion Plans being the actual products that are available. The first thing to note is that equity release schemes, equity release mortgages and lifetime mortgage are one in the same thing, with the terms used interchangeably. Concise Finance Wandsworth of these products identifies a financial product that releases money for homeowners aged 55 or higher. The amount of money is released from the equity in their property, with the amount being based on the property value and age the youngest applicant. The total amount that may be released starts at around 21% for all those aged 55, and increases at approximately 1% per annum up to a maximum of 56% at age 90. The maximum amount available for drawdown changes between providers. Essentially all equity release schemes operate by releasing a lump sum that could be spent however you wish. Now this may be for home improvements, to supplement ongoing pension income and state benefits, for the holiday of a lifetime, or just to assist your loved ones such as children or grandchildren. The options available when releasing equity are either as a maximum lump sum according to the prior percentages, or as the very least lump sum around �10,000 with the total amount being made available as an equity release drawdown facility. Equity release drawdown is normally set to the very least release of between �2000 and �2500. After you have released funds, interest is rolled up against the borrowing, generally at a set rate of interest forever. This means that you understand from outset exactly how your debt will increase over time. For example a lump amount of �10,000 at a fixed rate of 7% will grow to �19672 after 10 years, and �38697 after twenty years once the rolled up interest is added to the original borrowing. Compare this to a lump amount of say �30,000 which would grow to �59,000 over a decade at a fixed rate of 7%, and the benefit of equity release drawdown option is clear to see. It is worth noting that different providers provide option to protect a portion of the property for all those wishing to protect an amount for inheritance, i.e. protecting 50% of the house value. This certainly provides reassurance, but will reduce the most that could be released from the property as the aforementioned percentages would be using the reduction of the unprotected portion of the house. Equity Release Lifetime Mortgages really can provide a solution for all those which are asset rich but cash poor, and may make the difference between just getting by, or actually living and enjoying retirement and old age. They're not for everybody though, and obtaining advice in one of the numerous equity release advisers on the market is to be recommended. This will help offer you an appreciation of both pros and cons associated with Equity Release. For instance: - Pros You can remain living in your property for the rest of your life There are no monthly payments to be made The debt is repaid only once the last surviving applicant dies, the property is sold, or a move into long term care. No negative equity guarantees make sure you can never owe more than the property is worth Cons Releasing equity make a difference entitlements to means tested benefits. As interest rolls up as time passes, the reduction in equity will make it difficult to move home, or downsize. As the interest rolls up the amount that may be left to your beneficiaries reduces. Home Reversion Plans Unlike Lifetime Mortgages where you retain complete ownership of the house, Home Reversion Schemes work on the basis that you can sell anything from 20% to 100% of your property to the Home Reversion Company, with any amount not sold, being held in trust. Home Reversion is only a small area of the Equity Release market, as many folks view them as being poor value. With other equity release schemes you benefit from any capital growth in the property as you retain ownership, whereas after you have sold a percentage of your home to a reversion company, any increase in the value of that portion belongs in their mind alone. As with all financial products there is rarely a perfect solution, and so taking time and energy to review all the information accessible to you is likely to be time wLike it? Share it! More by this author |