Everyone is strapped for cash today and if you being retired are in the same financial situation – there aren’t many places where you can get the needed cash from but your pension and your home. Having your own property is the key to equity release. If you’ve tried all other options then maybe this is the solution for you. Equity release comprises a range of financial products which are only available to you only if you're over 55 years old. In simple words, equity release allows you to release cash off the value of your home, in the form a lump sum, additional monthly income or both, without moving out. In this guide, you'll find about what the different types of equity release schemes are and some useful tips and advice.
Equity release is a good idea if you want to free some tax free sum from your property, but bear in mind that your inheritors might be afected.
There are two main types:
* Lifetime mortgages – With such a mortgage you borrow money on which you pay interest and you don’t need to pay back until you sell the property or you pass away. Double check what the interest rates are and consider expectations in increasing as your debt my double in 10 years. If the money from the sale of the house is not enough to cover the debt, the difference is covered by the equity release company and no heirs or relatives are responsible for it.
But if the debt is covered and there is an amount left it will be distributed according to the plan holder’s will. A popular variety on this lifetime mortgage is drawdown lifetime mortgage which allows you to the maximum equity you can take and you can obtain it in different amounts in stages. These are available from the age of 55.
* Home reversion plans – You agree to sell a share of you property for a lump sum. The price is usually lower than the market value but you will have be able to continue living in your home as long as you wish for. If you pass away or move out, the property is sold and the provider gets the same share he paid to you from the price you sold it for. These are only available to people aged over 65.
- Use online equity release calculator to see what plans are available now on the market.
- Weigh up the good and bad sides. You will be likely to get less money for your home than what it’s worth for. If you go down the property ladder to a smaller home – it may work out better for you.
- Read thoroughly the plans. Many of them are too complicated and you’ll never be sure what exactly happens. If you are confused – ask the equity release provider. Contact a solicitor to check the paperwork for you.
- Your choice of equity release might affect you tax position and benefits so be careful to go through it with a financial adviser.
You might also want to read about: Equity Release Calculator
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