Not everyone can qualify for releasing equity from their property, but for those that do it can offer some real financial advantages. The following is going to look at equity release, what it is, how it can help, and what you have to do in order to qualify. Throughout the article you should learn what steps to take and have an educated decision made. If you find it is not the right product for you that is okay because at least you know what is going to work or not for your retirement years.
Qualifying Assessment for Retirees
If you are over 55 and have a property that is worth a fair bit more than you paid for it all those years earlier, then you may have considerable equity that you can use as collateral for a loan. The even better news is that you may never have to repay the loan, because it will be repaid after your demise, by the eventual sale of the property. Ideally you need to have paid off your mortgage or be fairly near to the end of it to make this work, although many equity release companies don’t mind too much if you still have a first mortgage as long as the outstanding debt amount is not too great. They will, in effect, take a second charge against your home, and you can usually receive it as a lump sum which you can use to buy an annuity that gives you an income for life.
Your age is a factor, but there is another area that is considered on the application – your health. Your health is definitely something that can be used to your advantage in retirement when discussing equity release like lifetime mortgages. This is due to the enhanced lifetime mortgage product that is newer to the market.
It allows you to gain a larger lump sum when you have a health issue such as cancer, diabetes, obesity, and other issues that could reduce the longevity you have. You still have the same terms as the main roll up lifetime mortgage; however, the thought is you pay off this loan earlier than someone in good health. In this case poor health can be an advantage.
Income is only a factor if you elect to go with the interest only lifetime mortgage. This type of mortgage requires a monthly payment of interest. Most companies want to ensure that you have disposable income for these payments, but later on if things become too hard with making the payment you can roll over into a lump sum mortgage where the interest starts accruing on the loan.
Another qualifier is the valuation of the property. It has to be enough to make a loan worthwhile for the lender.
It is worth remembering though, that if you take out all the equity in your property now then there will be nothing left for others in the family to inherit. Some would argue that it’s for the children to make their own way in life and that you should enjoy the proceeds of your assets yourself. It is of course, a matter of personal choice, but there is nothing to stop you taking just some of the equity for yourself and still leaving a worthwhile inheritance, depending of course on the amount of disposable equity that you have.
Structuring the Loan to Benefit You
The equity release plan can be structured in a number of slightly differing ways. You can have, for example, what’s called a Lifetime Mortgage where you retain ownership of the property and therefore benefit from any future increase in its value, and you retain the right to live there for the rest of your life without making any repayments on either the capital or interest. Alternatively you can take an interest only mortgage and make regular repayments to cover the cost of the interest on the loan. You can even get flexible mortgages where you can take a lump sum now and further amounts later, within the limits of the total sum agreed.
There may be certain tax implications or loss of state benefits if you take a lump sum through equity release so it is well worth seeking the advice of your accountant or an independent financial advisor, since once you have committed to a contract you cannot easily change your mind. In essence it is simply a case of deciding whether you want “jam today” or “jam tomorrow”. Take a moment to find out if releasing equity from their property is possible for your family.