Ways of Releasing an Extra Income in Retirement
We already appreciate the fact that living comfortably after retirement is far from the norm. The vast majority of pensioners unfortunately struggle to make ends meet and when they have worked for many decades and usually looked forward to a relaxing retirement, it is such a shame that this rarely transpires to be the case. There are solutions out there to make retirement more comfortable like interest only lifetime mortgage plans.
Pensioners may not actually realise that there are ways in which they can make their retirement more financially secure. Most retirees have usually paid off their mortgage by the time they have left work, and may well be sitting on a little gold mine that will allow them to enjoy their years of retirement.
Whether it is equity release or an interest-only lifetime mortgage such options really can take the sting out of not having any money to enjoy those extras in life. Perhaps you fancy having that conservatory added on to your home, or maybe you have your eye on a Caribbean cruise: whatever you have always had your heart set on, such plans can free-up some of the equity in your property and allow you to enjoy it in the here and now.
How Does An Interest Only Lifetime Mortgage Work?
A hybrid of the lifetime mortgage plans, the interest only version allows the repayment of the interest charged by the lender each month. This is in reverse fashion to the more popular roll-up schemes where the interest compounds monthly or annually & hence the balance increases over time, eroding the equity in the property. Therefore, with an interest only lifetime mortgage the balance will remain level, thus protecting the estate and helping the ultimate beneficiaries receive their inheritance as they wished.
Obviously, there are some important considerations that will need to be taken into account whenever you look to pursue any such plan. The amount of money that you will be able to leave as an inheritance to your loved ones will always be affected. However, it is most likely that they would prefer you to enjoy your retirement now; after all, you worked hard to build up that equity in the first place.
Like the roll-up equity release scheme, the interest only lifetime mortgage is repaid upon death or the last person moving into a long term care home.
At that point the property will then be sold within a 12 month period with the lender then receiving full & final settlement. Lenders who provide such schemes are Stonehaven, Just Retirement, more2life & Partnership and can be accessed via any qualified equity release advisory firm such as Equity Release Supermarket.
Typically the contract with the provider or lender will include a clause that saves the house from being sold. The lender will want their money plus interest with lifetime mortgages. If the family can prevent the house from being sold by paying off the loan in full the provider will not be unhappy. The house is still that of the homeowners since it is not sold to gain equity funds like home reversion plans. This leaves the choice up to the beneficiaries for how they pay off the balance left on the equity plan.
In the case of interest only lifetime mortgage it can be easier to keep the house and pay off the loan amount because the interest has not accrued year after year. It is paid leaving the principle balance of money taken out.
For example if you decide you want to take £5,000 in equity from your home and pay interest on that loan for ten years, you still only have the principle balance to pay at time of death or removal to a care facility. Most of course take a larger sum, but the point is if you keep the equity loan reasonable the interest payments can be affordable and the loan can be paid off without selling the home. Each instance is different, of course, so it is best to speak with your family before moving towards one particular equity release option.
Depending on the amount of your state pension you may require added help during the month, which would make the interest only lifetime mortgage unavailable to you. Do not lose hope though as there are other equity release options like roll-up that you could use. You do not make monthly payments on the other forms of equity release, which can help you during your retirement period.