About Equity Release Schemes
Many homeowners look for a way to maximize their financial security and freedom during their retirement years with equity releases becoming the focus of much attention. For many, this has resulted in them looking into equity release schemes, from which there are many to choose. Equity release schemes enable you to take advantage of the equity that you have built up in your home or property. The money that you may be able to receive through an equity release scheme could be used on virtually anything you want. Once received, it is your money to do with what you want or need.
There are several different equity releases available, most of which can be tailored to serve your particular and individualized needs. Many of these schemes offer different interest management arrangements including the option to pay back the interest over the course of your loan period or to pay nothing. This decision will have far reaching affect for the heirs to one’s estate.
For those who choose not to repay any interest that accrues on their equity release loan, the interest is simply added to the original borrowed amount and the total is paid off upon the sale of the home. This sale typically takes place when either the homeowner has passed away or has entered into a permanent long term care facility. It is only at that point that equity releases are paid off from the sale of the property, and whatever is left over can be used to provide the inheritance for beneficiaries. So, of course, the decision to invest in equity release schemes, and which one, can greatly impact the ability to leave behind an inheritance.
Eligibility for Equity Release
In order to qualify for an equity release scheme, you must be at least aged 55 but there are some differences that occur between different plans and providers. There are currently two different types of equity release schemes available.
To receive a definitive answer on whether you’re eligible for equity release, contact an equity release specialist.
Types of equity release schemes
The two main kinds of equity release schemes currently available are:
1. Home Reversion. With a home reversion plan, you opt to sell part, or all, of your home in exchange for the ability to stay living in the home. You are also given cash payments either in the form of a one-time lump sum payment or through regular income payments. You can also choose to do both. Home reversion plans seem to be the less popular of the two equity release possibilities available due to the stigma of not owning your own property 100%.
2. Lifetime Mortgage. The lifetime mortgage is the most popular of all equity release schemes. Through one of these plans, you take out a loan that is secured against your property & recorded at the Land Charges Registry. More often than not, you do not have to make regular payments with one of these schemes, however this decision should always be discussed with your independent equity release adviser. There are a number of different lifetime mortgage schemes available including:
a. Enhanced lifetime mortgage. With this scheme, those homeowners who are in poor health are able to receive a much higher lump sum payment based on their various health conditions and/or lifestyle choices.
b. Lump sum lifetime mortgage. This option allows for a simple lump sum payment which can be used at the homeowner’s discretion. For those not requiring flexibility.
c. Drawdown lifetime mortgage. A drawdown lifetime mortgage gives the homeowner the highest level of flexibility and control over how and when they spend their equity release. With this option, homeowners are able to borrow a smaller amount up-front and drawdown any subsequent releases from a ‘cash facility’ which holds whatever equity release amount to which they may be entitled. Interest is only charged on the funds taken, NOT on the cash left in the reserve facility.
d. Interest only lifetime mortgage. Increasingly popular, this option allows the homeowner to pay off the monthly interest they accrue on their loan. This allows the homeowner to leave behind a fixed & balanced inheritance to their beneficiaries. The reason being the only amount owed at the end of the loan period will in fact be the initial amount borrowed. No interest will have accrued on the interest only lifetime mortgage as it’s cleared each month. This is a great option for those homeowners who want to be able to leave something behind to their loved ones.
Lifetime mortgages are the more popular option because they do offer a different level of tailoring and personalization. With so many different variations of the lifetime mortgage, most consumers are able to find exactly what they are looking for in at least one of the different schemes.
Regardless of which option is chosen, there are several ways to individualize and customize any of the equity release schemes currently available. However, it is always suggested to seek personalized and independent financial advice to ensure that equity releases appropriate for your particular situation. Once you are sure you want to invest in an equity release scheme, you must take independent equity release advice and guidance in finding and choosing the right scheme for your needs.