19 February 2014
Equity Release
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How Does Equity Release Work for Enhanced Plans?

There is good news for people suffering from some serious ailments because if you have a bad health condition it makes you eligible for enhanced equity release plans. This means you are entitled to borrow more cash from an equity release plan as opposed to what a healthy person is entitled to borrow against the same property. In order to understand the logic and reason behind this you need to understand, how does equity release work?

Equity release is sweeping the market these days with more and more people opting for this option as it provides them a facility to release cash against the equity built up in their house. The best part of these schemes lies in the fact that the person borrowing money neither loses the ownership of his/her house nor has a liability to make any payment against this amount as long as he/she is alive or moves permanently to a long term care.

The lenders have the power to sell your house once you are either dead or you have permanently moved to a long term care. After selling the house, they settle down the loan given to you along with the interest accumulated for all the years when you were holding the property. If there is a surplus generated then it goes to your legal heirs but if there is a deficit then there is nothing more to lose as your liability is limited only to the house being mortgaged.

You have the right to ask for an option to settle the account without sale. Your beneficiaries, if there is sufficient cash from a life insurance policy or with money they have, can settle the account. In this way the provider gains the funds necessary to settle the account and your beneficiaries are left with the house. It only works if your provider is willing to put this clause in the contract. Your beneficiaries would have 12 months to settle the account with a sale of property, whereas no property sale means immediate settlement.

The type of equity release being discussed here is called a lifetime mortgage. This is different from another option. When you ask how does equity release work, you also want to discuss home reversion. With reversion plans you actually sell a piece or your entire home. It creates a situation in which the home must be sold to satisfy the agreement. The good news is you do not have a mortgage on the house, so there is no repayment at the end. The remaining property not sold while you were alive is the inheritance you leave behind. It is an option separate from the enhanced version of lifetime mortgages.

If you are in poor health then gaining an enhanced amount of equity for your shorter life expectancy can ensure a happy and contented life for your remaining years. It is not the only option since you also have drawdown plans and interest only equity release mortgages. As you shop around for equity release plans and find out how they work remember that you have several choices and that enhanced is only one that might benefit you the most given your health situation.

The calculations are simple to understand and can help you decide if enhanced plans are right for you. The tenure of loan is speculated over the life expectancy of the borrower. It means that the more your life expectancy is, the less your entitlement, and the shorter your life expectancy is, more cash could be released. Lenders are ready to pay you more cash or even lower rate of interests in case you have some poor health condition due to any serious illness.

In order to select the right enhanced plan for yourself, you must ask the firms offering such plans. The application form shall have a number of questions related to your health condition such as asking information about smoking or drinking habits, history of heart attacks, HIV/AIDS diagnosis, any history of diabetes and many more. Selecting the answers in a right way could give you a reason to spend the rest of your life living it your way with the cash released from such plans.

How does equity release work? It is dependent on which scheme you choose such as the enhanced lifetime mortgage being discussed. Typically there is more emphasis on your health in this plan versus some of the other equity release schemes that are available for you and your family.

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