Equity Release-Schemes

Equity Release-Schemes

Equity release-schemes are schemes or mortgage products designed for mature individuals to receive money or capital from the value of their property. Equity release-schemes are available to mature individuals, the minimum age being 55. People may use equity release-schemes to increase income, as a result of pension income not being sufficient enough to maintain a standard of living. Many clients turn to equity release-schemes as an alternative to selling their home, as they may be emotionally attached to their home and the community. Other individuals tend to use equity release-schemes to fulfil personal aspirations, such as travelling. Our ambition is to guide clients, who are considering equity release-schemes as a method of raising income, towards gaining the most suitable scheme associated to their needs.

There are two sub-products of equity release-schemes, lifetime mortgages and home reversion plans.

Lifetime mortgage equity-release schemes enable the borrower the chance of paying back the mortgage interest accrued, i.e. at the event of the death of the borrower, or the plan holder occupies residence at a care home without the intention of returning.

Within lifetime mortgage equity release-schemes, there are three sub-categories, the first being interest only schemes. Only interest has to be paid on a monthly basis, with interest rates varying each month. The debt of the mortgage is fixed and has to be paid off at the end of the arrangement.

Rollover interest lifetime equity release mortgages enables the borrower to pay the interest along with the mortgage at the end of the contract, however interest is calculated on a monthly basis and totalled to the sum of the debt.

Home insurance plans only authorize the borrower to use the lump sum of cash to purchase an annuity, providing the borrower with an income for life. Insurance on this policy may be fixed.

Lifetime equity release-schemes are associated with certain risks. Interest rates that ate variable could result in increased debt if the rates rise further. Younger borrowers are prone to facing substantially large debts due to a longer life expectancy. In addition, the debt left by the mortgage at the end of the contract would reduce the equity left in the borrower’s estate. However, the borrower is still the owner of the property and no monthly mortgage payments are necessary. We strive to find our clients the most affordable and beneficial lifetime equity release-schemes, assessing their financial situation to offer a practical product.

A home reversion plan is the second of two strands of equity release-schemes. The plan holder receives a lump sum of money, which they can use as they wish. In exchange, the provider is entitled to a certain percentage of shares in the homeowner’s property. A full home reversion plan entitles the provider to all of the shares in the property, whilst a part home reversion plan enables the borrower to maintain some of the shares in the home. The borrower is also promised lifetime occupancy, on the basis that the provider sells the property on the market at the end of the contract (at death). In a part reversion plan, any inheritors of the borrower’s wealth are entitled to a certain percentage from the sale of the property.

Benefits of home reversion equity release-schemes include the fact that they offer higher cash sums than lifetime equity release mortgages. In addition, no monthly income payments are required, so the lump sum of money can be used at will by the borrower. However, the owner loses his right for future investment into the property and the procedure would be very costly if the plan holder dies shortly after the agreement has been finalised.

An individual who is contemplating the option of arranging equity release-schemes must be aware that this method of generating a form of income may not be suitable if the individual is intending to provide cash for inheritance. Equity is usually dissolved or sold by the provider of equity release-schemes. Our advisers work on the basis of achieving the ideal equity release scheme for you, based on your financial and personal aspirations.

Seeking equity-release schemes? Call one of our specialist advisers today.

How to get in touch

Feefo logo

This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration.