Equity Releases

Equity Releases

Equity releases are a method used to gain access to money from the value of the individuals own property. The individual must be a homeowner and has to be over 55 years old to be eligible to arrange equity releases. The borrower has the options of either receiving a cash lump sum, or receiving a regular income, allowing the borrower to use the cash to their intentions. Equity releases also let the borrower retain occupancy in their home. The borrower can choose between lifetime mortgage equity releases and home reversion equity releases.

If a borrower decides to choose a lifetime mortgage equity release, he or she is effectively taking out a loan that is secured against their property. The borrower continues to maintain ownership of their home, even though they have to pay the mortgage back to the provider of lifetime mortgage equity releases at the end of the contract. The contract will end in the condition that the homeowner dies or is taken into care, without the intention of returning to the property. By consulting to our skilled team of advisers, we ensure total devotion in the process of differentiating between the types of equity releases and proposing the perfect form of equity release related to the clients necessitates and desires.

There are three different lifetime mortgage equity releases available, interest only, interest rollover lifetime mortgages or home income plans. The loan received by the borrower in interest only lifetime mortgages is a cash lump sum. Interest is on the loan is paid each month, either at a variable or fixed rate. Homeowners who receive a fixed income may struggle to meet payment dates if interest rates are variable, if interest rates rise.

Interest rollover rates also enable the borrower to receive a cash lump sum, yet no interest is charged every month. Instead, the homeowner has to pay the interest back along with the sum of the debt at the end of the contract (at death). This may consequence in a higher debt to pay off at the end of the contract, as the interest rate is calculated monthly through the arrangement term and added on to the debt of the mortgage.

A positive aspect of lifetime mortgage equity releases include the borrower not losing ownership of the property, allowing them to invest in future plans for their home. Moreover, equity may be left in the property after the homeowner dies, which may be available to the homeowner’s beneficiaries. On the other hand, the loan the borrower receives is of low proportion compared to the value of their home. Increasing interest rates may exceed growth of the property, leaving little equity to the borrower’s successors. A no negative equity policy is included in the arrangement, so if the total debt exceeds the property value, that difference is paid back to the borrower or his successors. Our skilled group of advisers will aid each client in their decisions when considering equity releases. Individuals will be aware of the benefits outweigh the risks and will also be guided towards the most appropriate scheme.

Home reversion providers purchase part, or all of the homeowner’s property in exchange for cash, either paid in instalments to the borrower, or as a lump sum. The amount of money the homeowner receives would typically be between 20% and 60% of the full market value of their property. Older homeowners may receive a higher percentage. The minimum age for homeowners to be eligible for the home reversion plan is usually higher than the minimum age for lifetime mortgages. The provider will benefit from any rise in property value, as they are entitled to sell the property on the market at the end of the contract.

Home reversion plans works to the borrower’s advantage, as no monthly payments are required, allowing the borrower to use the money to their intentions. Equity in the estate may be retrievable to the owner and his beneficiaries (only applicable to part home reversion schemes). The borrower must however be aware that they will not retain full ownership of the property, preventing them from investing into further plans for the home. It would also be difficult for the homeowner to move homes after the deal is made and increases in income may restrict the borrower’s right to claim for state benefits.

Individuals who are contemplating equity releases should consider other alternative options before partaking in an equity mortgage release, as it may result in unnecessary debts or the inability to provide payments on a monthly basis. This could have dire financial consequences. It is the duty of our professional advisers to understand the client’s potential aspirations and formulate a plan in relation to equity releases.

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