A Guide about Equity Release Schemes – Aspects To Be Aware Of
Understanding the various types of equity release programs available is vital for the rising number of older homeowners deciding how to handle their retirement savings. Equity release plans are evolving and now include several features, such as the ability to make regular payments toward the interest, access the money in stages, and even guarantee an inheritance to loved ones. One should know about the types of equity releases and the factors to consider.
Understanding the Basics of Equity Release
Equity release refers to the process of unlocking the cash tied up in your property without the need to move. Primarily, there are two types of equity release schemes: Lifetime Mortgages and Property Reversion Plans. The choice between the two primarily depends on individual circumstances and preferences.
Decoding Lifetime Mortgages
A Lifetime Mortgage is a long-term loan secured on your property. The borrowed amount, along with the accumulated interest, is repaid when you die or move into long-term care. It’s critical to keep in mind that while lifetime mortgages provide a lump sum, the accruing interest can significantly increase the total amount to be repaid.
Unravelling Property Reversion Plans
In a Property Reversion Plan, you sell a portion, or all, of your property to a reversion company in exchange for a lump sum or regular payments. However, you can continue living in the house rent-free until you die. The property or its sold part is only reclaimed by the company when you pass away or move into residential care.
Choosing the Best Equity Release: Factors to Consider
Choosing the best equity release scheme requires careful consideration of various factors. These include your age, health, property value, inheritance plans, and the need for future borrowing. It’s also wise to consider periodic installments to manage the loan repayment better.
Snackable Knowledge: Cool Tidbits about Equity Release
- Equity Release Council, a self-regulated trade body in the UK, ensures that all registered providers adhere to stringent rules for the protection of customers.
- Equity release can affect your entitlement to state benefits.
- You can still move to a new house after taking an equity release, provided the new property meets your provider’s criteria.
The Downside of Equity Release
While equity release schemes can provide a financial boost, they also have potential downsides. The debt can quickly escalate due to the compound interest on lifetime mortgages. Similarly, property reversion plans might not give you fair value for your property, considering you’ll only receive a percentage of the current market value.
In conclusion, equity release schemes can be a viable solution for those seeking to supplement their income in retirement. However, it’s essential to understand the fundamentals, consider potential downsides and consult with a financial advisor before making a decision. It’s a significant financial commitment that can have long-lasting implications, so it’s crucial to tread carefully.
