Equity Release Advice

Equity Release Advice

Equity release is a method of retaining residency in your own property by using the value of the house to take out a mortgage, allowing the maintenance of a steady income. Equity release is described as the difference between the value of the property and the loans secured against that property. Equity releases are mortgages which are specialised for people who are over 55.

The type of homeowner an equity release would appeal to include those who already possess an already reasonable lifestyle to gain more from life, such as travelling around the world or purchasing a holiday home abroad.

When seeking equity release advice, there are two main types of equity release; the homeowner can either take out a lifetime mortgage or a home reversion plan.

Lifetime mortgages allow the borrower to withdraw a mortgage, which only allows the mortgage provider to seek full payment when until the agreement is ended. The lifetime mortgage agreement is only ended on the condition that the borrower dies or moves into another residence without the expectation of returning (such as a care home).

There are 3 types of lifetime mortgages; interest only, interest rollover and a home income plan.  Interest only lifetime mortgages work in allowing the borrower to pay the total mortgage back at the end of the agreement (at death).However interest rates are paid monthly to the provider and are variable month to month.
An interest rollover lifetime mortgage consent to the borrower paying back the sum of money, including interest, when contract expires. However, the interest is calculated every month and added onto the total debt along with the loan, which is paid to the provider at the end of the agreement.
A Home income plan allows the borrower to use the mortgage to buy an annuity, providing a fixed income for life and is used to make payments to the lender each month. Interest rates are fixed in this type of lifetime mortgage.  Home income plans are only useful when the annuity income tax is more than the mortgage payments each month.

Taking out a lifetime mortgage include a series of advantages, for example the money borrowed from the provider can be used as the borrower feels. In addition, the borrower does not lose ownership of the property, no monthly payments of the mortgage have to be paid and equity may be left in the property after the homeowner dies, which may be available to the beneficiaries.

On the other hand there are disadvantages when looking for ERA and seeking a lifetime mortgage. The amount of money borrowed will be of low proportion of the property, more so for younger plan holders. If interest rates are higher than the growth of the property, the debt will increase significantly and this will reduce the equity, which will be a knock on effect for the children or beneficiaries of the borrower. However, there is no negative guarantee equity installed into the agreement, this means the provider is not allowed to let the total debt at the end of the agreement exceed the value of the property. The borrower doesn’t have control over the interest rollover and younger borrowers, who have a higher life expectancy, will receive more interest by the time they die or are admitted to a care home. Moreover, increases in income due taking out the lifetime mortgage can prevent the borrowers privileges to claim benefits.

An ERA specialist may also suggest a home reversion plan, which allows the current homeowner to receive a lump sum of money, which is non-repayable, under the circumstances that the provider buys shares in all or part of the house. The seller is guaranteed occupancy until death and the home reversion plan arrangement will only end if initial seller dies or occupies residence at a care home for their remaining days. It can also be terminated at the end of a period of a minimum of 20 years to the day the agreement was made.

The benefits of the home reversion plan include the borrower’s lifetime occupancy in the property to be guaranteed, on top of the fact that no monthly payments are required. The money raised by the borrower can also be used for their own wishes.
In a part reversion scheme, some equity in the estate is retrievable to the owner and his beneficiaries. However, this means that the original owner of the property loses full ownership of the property and loses the right of future growth in all or part of the property. The decision to move homes after the agreement is made can be restricted. Finally, increases in income as a result of agreeing to a home reversion plan may affect the borrower’s right to claim state benefits such as pensions.

Individuals looking for ERA will be making a life changing decision to consider as you approach retirement. Not only will it affect an individual, but it will also have a future bearing on one’s children and beneficiaries, so deep thought and consideration has to be applied before obtaining an equity release product.

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

CHECK THAT THIS MORTGAGE WILL MEET YOUR NEEDS IF YOU WANT TO MOVE OR SELL YOUR HOME OR YOU WANT YOUR FAMILY TO INHERIT IT. IF YOU ARE IN ANY DOUBT, SEEK INDEPENDENT ADVICE.

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

CHECK THAT THIS MORTGAGE WILL MEET YOUR NEEDS IF YOU WANT TO MOVE OR SELL YOUR HOME OR YOU WANT YOUR FAMILY TO INHERIT IT. IF YOU ARE IN ANY DOUBT, SEEK INDEPENDENT ADVICE.