If you own a home, you can use equity release as a way to borrow money against the value. They are not the right thing for all homeowners but they can be a good way to get income when you need it. Here is a basic explanation of the way they work.
The value of your home less any debt or mortgage outstanding equals the equity you have in it. With an equity release, you can use that value to get money while still residing in your home. Equity releases have a minimum age requirement to take advantage of them, usually it is over 55 years old, sometimes even older.
Equity release can be done in one of two basic ways, either via a lifetime mortgage or via a home reversion plan. Lifetime mortgages use your property as your loan security with the interest added to the amount borrowed. No monthly mortgage payment is required as the outstanding balance ir repaid from the proceeds of sale upon death, the sale of the property when moving, or a move into long term care.
Home reversion plans on the other hand involve you selling at least part or possibly all of your property. As with a Lifetime Mortgage, you can continue residing in your home for the rest or your life, but as a tenant rather than as the owner. In both cases the responsibility to maintain the property in good repair is with you.
Money from an equity release can be taken as either a regular income or a lump cash sum. There are a few options if you prefer the income. One is taking the lump sum and then investing it into an annuity. This will then give you regular payments. In some cases, the particular plan you choose may pay out in regular payments. Other plans pay out in a combination of lump sum and regular payments or just give you cash as you need it.
There are several things you will want to consider before making use of an equity release scheme. It is important to know how your taxes and benefits, if you have any, will be affected. An equity release scheme can also affect your ability to move to another property or restrict your ability to pay for long-term care such as assisted living.
It is also a good idea to consider the use of other investments and savings before undertaking a home reversion or lifetime mortgage. With Home reversion you need to decide if selling your home is really a good idea. With an annuity backed lifetime mortgage you need to compare the return to the risks of this type of loan versus other types of investment. And consider the potential effect on your beneficiaries.
Whether or not to participate in an equity release scheme is a difficult decision and there is a lot to think about. It is a good idea to discuss it with someone who understands them well and can advise you. Have them take you through all the potential outcomes, especially those arising from your death or need to move to a long-term care facility. This is a decision you will want to make in the most informed way that you can.
Find out more about the benefits of having a lifetime mortgage today! When you have all the details and information about equity release, you will be able to begin planning for your future financial security more easily!