In just a few short years equity release has become an ever increasingly popular method for retirees to continue living the standard of life they are accustomed to and not have to sell their homes. By releasing some of the value of your home in the form of tax free cash you can cease payments on your mortgage and still keep your home until you die or move into long term care. Yet, how to release equity is a concern amongst those who are considering these plans.
There are various equity release schemes available to choose from, depending on your own personal requirements. When it comes to how to release equity there are two examples which are lifetime mortgages and home reversion schemes.
A lifetime mortgage allows you to remain living in your home and cease your monthly mortgage repayments. You then borrow against the value of your home in either one lump sum, by instalments or a combination of both. The property then has to be sold when you move out permanently or die. In rare cases your beneficiaries can save the property by paying off the loan through other funds. The mortgage provider only wants to ensure they have their money back plus the interest accrued during your lifetime.
Lifetime mortgage plans come in a variety of forms like drawdown, enhanced, and interest only. Interest only lifetime mortgages are the only type that requires a monthly payment for the money you withdraw. The payment is just for the interest accrued during your lifetime. The principle balance remains to be paid after you move out or death occurs. For some this is an option, but it does require that you have disposable income.
In contrast home reversion schemes allow you to sell a percentage of your home and still live in it. When you move out or die the home gets sold and the reversion company will get their percentage. They will always buy at lower than the market value due to the fact that you can live there rent free for the rest of your days. A lifetime tenancy agreement is set up to ensure you and your companion are able to remain in the house as long as you like or live.
How much to release is an important decision and is not to be taken lightly. You have to try and take just enough for your immediate needs. This depends on your expenditures. It is important to understand that you cannot take more than the value of your home and that the loan should be able to last until you move out or die.
Another concern is house values. Your home value changes as the real estate market changes. In recent years the housing market has suffered due to two recessions in the UK, which has made the question how to release equity tougher for some. At retirement many individuals already own their home and no longer have a mortgage, which puts the entire house in an equity situation. While you cannot take the entire amount of value of your home, you can take a goodly portion. The portion you take out should be well below value in the event of housing value issues. It ensures that your family will not have to sell the house to pay the mortgage back unless they desire to do so.
Most often the best option for loan repayment is a sale of the house within 12 months of your death or move out to a care facility. Beneficiaries may be unable to make a repayment in a full sum to keep the house, which is why most online articles state the sale as matter of fact with lifetime mortgages. It is actually only home reversion schemes in which the house must be sold.
The reasons why people release equity are varied but all come down to the same basic need to maintain a lifestyle you have grown accustomed to before you retired. This can be to settle other debts you may have, pay expensive healthcare fees or treatment and many other reasons. The main idea behind equity release is to allow retirees to keep their property & maintain a lifestyle that wouldn’t otherwise be the case on state pension & other benefits that may be paid.
As with any other financial transaction or big decision, make sure you find a good equity release mortgage adviser so that you can make an informed decision that will benefit you on how to release equity.
Tags:Care Facility, Equity Release, Equity Release Mortgage, Equity Release Mortgage Adviser, Equity Release Schemes, Healthcare Fees, Home Reversion Schemes, How to Release Equity, Interest Only, Interest Only Lifetime Mortgages, Lifetime Mortgage Plans, Lifetime Mortgages, Lifetime Tenancy Agreement, Loan Repayment, Long Term Care, Mortgage Provider, Real Estate Market, Release Equity, Reversion Company, State Pension