Entries in category Equity Release

What is Equity Release?

Equity release is types of schemes which enable the owner to take cash from the equity which is built up on their property. The equity release is mainly for the older homeowners who generally will not be able to get the regular mortgage or if they get it is after a lot of struggle as they have too little income or no income as such to pay the regular repayments. Equity release plans enable the homeowners to tap the value of their property without actually selling it or moving out of it. There are mainly two types of equity release, lifetime mortgage and reversion plans. The decision to choose one of them is what you will have to do if you want to go for equity release.

When going for equity release it is good idea to take advice both legal as well as financial. If you extract money from your home, many aspects of your finances can get affected, which include your eligibility for any means-tested benefits or even the value of your property when you die. Taking financial advice will help you understand the plan you are taking and if there will be any negative implications of getting the equity release.

Lifetime mortgage is a type of equity release in which you can get a lump sum of money or an income and even a combination of both as a loan on your property. However, you still own your property. On the other hand, the second type of equity release is home reversion schemes in which you happen to sell a part or whole of your home to one company who allows you to have lump sum of money or a regular income along with the right to stay in your own house. However, this scheme accounts for a very small part of the market.

Lifetime Mortgage Equity Scheme

Equity release plans are scheme in which the property or homeowners can get a loan on the equity built up on their property. This is in general given to old homeowners who do not get regular mortgage easily or have very little or if no money to make the regular repayment of such loans. There are two types of schemes for the equity release and includes lifetime mortgage and home reversion schemes.

Lifetime Mortgages is a type of equity scheme which is most prevalent in the market and is generally given to people whose minimum age is 55 years. In this scheme the homeowner or the property owners can take loan on the same in the form of lump sum money, regular income or both of these. In this scheme the owner of the property remains the same and it is not sold. There is no need to make any monthly repayments in this and the interest in this case gets rolled up on which the compounding effect applies and very soon the amount that you owe increases.

One of the types of lifetime mortgages is the “drawdown” version. This scheme is designed for all those who will not require much of the lump sum amount of money. In this, a pot of money is set separate for the borrower to withdraw as per his/her requirements. The advantage is that the interest is levied only on the amount you release and hence it enables you to save lot money.

The benefits of going for equity release are:

  • The lump sum of money you got through equity release is tax free
  • You do not require to move out of your home
  • The best thing is that you can also guarantee an inheritance of the property for your family.
  • With most of the plans, you can move out of the property without any financial liability.

Home Reversion Equity Scheme

Equity release is a provision in which you can unlock some of the cash which is attached with your home and the best thing is that it is tax free. This money can be used to as a source of regular income or can be used for home repairs or any such requirements. You can also ask for a lump sum of money to sponsor your holiday, help your children or let the family enjoy the property as the inherit it. This scheme is generally given to those who have owned the home for a long time and therefore the value of the home would be much more than what it was when you bought the home. Thus you can release the cash on the equity built up on your home for your needs.

Equity release scheme is of two types, lifetime mortgage and home reversion. In case of home reversion is schemes you sell a part of your home or the whole home to a company with the right to stay in the home. This is different from lifetime mortgage in which you remain to be the owner of the property. The money can be given to you as a lump sum amount or as a regular income as per your need or instructions. When the home is sold, a part of the sale is given to the investment company as agreed upon by you and the remaining amount is given to you or your estate. The disadvantage of this is scheme is that you will have no right over the sold part of the home and any increase in the price of the sold part of the house to the investment company. While taking up this plan it is advised that you consult a financial advisor as well as take consent from your family members.

 

Equity Release Types

Equity Release is a scheme in which on can take a loan on the property that you own which builds equity over time without having to actually sell or move out of their property. Equity release mainly has two types of schemes which include lifetime mortgages and home reversion. If you want to go for equity release, you will have to decide on one of these schemes to go further.

Lifetime Mortgages is the most preferred type of equity release in the market. This is a scheme in which you can take a lump sum amount of money, a regular income or both as a loan on your property. In this scheme you still have ownership of the property. In this scheme you need not make any repayments monthly and the loan is repaid only when you go into a long term care or die. The drawback of this schemes is, since you do not make any repayments and the interest get rolled up and the compounding effect on the whole amount rapidly increases the amount that you owe. Money Advice has given out some figures in which if you take up a loan of $45000 on your property at 5% interest, in 5 years it will become $57433 and in 15 years it will be $93,552 and if you happen to live 25 years after you have taken the loan you will end up paying $1,52,387.

Home reversion constitutes a very small part of the equity release market. In this the homeowner can sell a part or whole of the property to some company in lieu a lump sum amount of money or for a regular income with right to stay in their home. Once you sell your property only a part of the sale is given to you or your estate. Say for example if you sell 60% of your property, you will get 40%, the fees for this is around $1500 plus charges of any financial advisor you may have.

Equity Release FAQ

Equity release is a scheme in which a person can ask for release of cash or regular income or both as a loan on the equity built on his/her property. There are many questions that will pop up in your mind when you are deciding on going for equity release. A few frequently asked questions are answered below:

  • What is the eligibility of equity release?
    For equity release the person should be at least 55 years and above and should own a home. In case the house is under joint ownership, both the owners should be 55 years and above. The property that you won should be worth a minimum amount; this varies with one lender to another. There are many factors which will affect the suitability of the product and also the lender, this include property type and even its construction. Consult a specialist advisor to explain all these things fully.
  • Who all can live in the house after equity release?
    Other people can also live in the house which has been given for equity release but they will have to sign a form to acknowledge the equity release plan.
  • Will the benefits get affected with equity release?
    All the equity plans reduce your state benefits and also the value of your estate. You may consult your advisor for any state benefit that you may still be entitled.
  • What is the money that I will get from equity release?
    The money that you will get will depend on many factors like, the value of the property and your age. The older you are, greater will be the proportion of your home equity that can be released. The amount of money that you can borrow and also the way in which it can be borrowed depends solely on the plan that you choose for equity release.

Equity Release – an Overview

Equity release is a scheme which allows you to get cash for the equity built on your home. The money you get can be taken as a lump sum amount, as a regular source of income or a combination of both. This is an excellent plan for elderly people who have little or no source of income as it allows them to still stay in the house that they have given for equity release. Equity release schemes include, lifetime mortgage plans and home reversion plans. The minimum age eligibility for lifetime mortgage plan is 55 years while for home reversion plan it is 60 years and above. When you take up an equity plan, the lump sum amount you get is tax free. However, if that money is invested in a saving account, any income that you get from it will be subject to tax.

The lifetime mortgage plan allows you to borrow money as a lump sum amount or as a regular source of income at certain interest rate. You continue to be the owner of your property and are entitled for any growth in the value of your home. However, in home reversion plans, you sell a part or whole of your house to a company who gives you the right to stay in the house till you want to move or are alive. The type of plan that you would like to take depends on your requirements. However, equity plans are not suitable for anyone and one need to get the advice of a financial advisor to find the eligibility and if it is beneficial to take up the plan. One should keep in mind that taking up an equity plan will reduce the value of their estate and also reduce any entitlement to the state sponsored benefits.

Equity Release – Hope for Elderly

Equity release is a scheme which allows you to take out cash from the home owned by you for the equity that it has built with time. This money can be taken to add to your income, for renovation of home, if you plan to go for a holiday trip, to help your children build property or you can just sit back and watch your family members enjoy the inheritance of the property.

If you have been the owner of your house for a long time, it will definitely be worth more now than it was when you bought the house even if the economy is not so very good. You can avail the equity release even if you have not paid your mortgage completely, but in this case you will have to pay off the mortgage loan or any such loan on your house and the remaining money from equity will be paid to you. This cash you can spend as per your need.

There are two types of equity release scheme, which is lifetime mortgage and home reversion. The minimum age limit to qualify for these schemes is 55 years for lifetime mortgage and 60 years for home reversion plans. One of the benefits of any of these schemes is that you do not need to move out of your home. You can stay in your home as long as you like to and when you move out there will not be any liability.

While taking up equity release you need to know certain things like it may affect your track position, and any entitlement you may have to state benefits. The value of the estate is also reduced so it is recommended that you consult a financial advisor and also your family members before taking up these schemes.

Advantages of Equity Release

Equity release is a scheme which allows you to draw cash on the equity built on the home that you own. The equity release is of two types, lifetime mortgage and home reversion. These two schemes is available only if you are and above 55 years for lifetime mortgage and 60 years and above for home reversion plan. Thus, this allows you to have a regular source of income in case you do not have any, or you can also ask for a lump sum of money. This plan is only for elderly people. There are many advantages of equity release and some of them are:

  • If you go for equity release, you can earn a substantial amount of cash in the form of lump sum amount or as a regular income or both.
  • There are plans in which you do not have to make any repayments or any payments until unless the house is sold off. However, you may have to pay for some of the initial charges levied.
  • You will have the luxury of staying in your own home until you are alive. This is a great advantage for who want money at the same time do not want to rent out another house.
  • You can take some cash now and take the equity release later. However, this depends on the amount that you take now.
  • You can move out of the home without any liability. However, there may be some restrictions levied which you need to check.
  • This will help you pay off any mortgage or loan that you may have
  • The money you get can be used for home improvement which will further increase the equity of your home.

Along with these advantages there are a few disadvantages as well which you need to know and take care of.

Advantages and Disadvantages of Lifetime and Home Reversion Plans

Equity release schemes are of two types, lifetime mortgage and home reversion plans. There are advantages and disadvantages of both and are listed below:

Advantages of Lifetime Mortgage:

  • The ownership of the house is still yours and hence you are entitled or any growth in the value of the house.
  • You are eligible for the plan when you are as young as 55 years.

Disadvantages:

  • The borrowed amount can increase substantially as the interest accumulates and due to compounding effect.
  • The long term nature of the loans makes this a high interest mortgage when compared to other mortgage plans.
  • You may not be eligible for any further loans if you have borrowed a large part of the value of your home or if the prices of the house fall.
  • Prepayment charges may apply if you plan to pay the loan amount early
  • After the equity release if you live for a long time and he price of the house falls, it may be that there is no equity left for your family to heir.

Advantages of Home Reversion Plans

  • If you have not sold 100% of your share in the house, you still retain the share in the growth value of your house
  • You can still have eligibility for cash advances depending on the percentage of house sold.
  • The best thing, you know how much of your home you own
  • Disadvantages:
  • The home reversion plans may take longer to get executed and many companies have lot of selection criteria before they consider any property.
  • If you sell only a part of your house, you may not get full market value.
  • This is not beneficial if you die shortly after going for the plan. You may have ended selling a portion of your house cheaply.

Advantages and Disadvantages of Equity Release

Equity release is a scheme in which you can get loan on the equity built on the home that you own. This is scheme available for people aged 55 and above. However, equity release is not for everyone and you will need a financial advisor to counsel you on the same. There are advantages as well as disadvantages of equity release which you should know before going for it.

Advantages:

  • Equity release will give you good amount of money as a lump sum amount or as regular source of income
  • There are products which do not require you to make any payments until unless you sold your house. Some initial charges may apply.
  • You still retain the right to stay in your house as long as you are alive.
  • You can move out of your house without any obligation

Disadvantages:

  • Equity release on your home reduces the overall value of your home and also the amount that would go to your family of beneficiary after your death.
  • One of the products of equity release requires you to sell a part or whole of your home for burrowing money from them. This may not be very beneficial for you, you may look to other alternatives to raise the fund you need.
  • The equity release scheme in the long run may become very expensive as the interest accumulates and sometimes becomes more than the amount you borrowed in no time. It may further downsize to a smaller property.
  • Opting for equity release always reduces the value of your estate and also your entitlement for many state granted benefits. However, you should consult an expert to check the benefits you are eligible before and after the equity release.

You should go for equity release only after weighing the pros and cons of opting for it.