Retirement is supposed to be the golden period when you should be able to reap the benefits of your working life. But as people live for longer and the cost of living increases, financial planning during retirement is becoming more and more significant. There are thousands of pensioners across the UK without enough cash to support their lifestyle during retirement and they are looking towards equity release plans for a solution.
Real estate prices have soared since the 1990’s and houses are essentially pots of gold waiting to be opened. But a house doesn’t turn into usable money unless it’s sold, and this is exactly where equity release schemes come into the picture. Equity release plans address this issue by allowing older homeowners to release some of the value built into their property and using it as cash.
Different people have different reasons for releasing equity from their home. Some people need more money to support their lifestyle after retirement, and equity release plans allow them to supplement their pensions for more comfortable monthly income. Others may need extra cash for a specific one off expense. This could be anything from building a conservatory, buying a car, or an international dream holiday!
Another important expense during old age can be paying for home care. Some people who require permanent care prefer living in their own homes instead of moving into a care home. As long as the owner is living in their home, the equity release scheme can remain in place. So an ER scheme can be used to pay for the provision of care as long as you’re living in your own home.
Equity release plans need to be closed once the owner has died or moved into a permanent care home. In case of joint applicants, this applies to the second applicant. So the house can only be sold when both the applicants have either died or moved into care. As such, ER can also be used to support paying for care in a care home, as long as the second applicant continues to live in the property.
Releasing equity can be a good option for those who own a property, and wish to increase their income or raise money for a particular cause. Equity release plans work for some and don’t work for others, so they need to be considered carefully before taking a final decision.
Equity release schemes can offer an important option to people who are looking to increase their cash flow and at the same time retain their home. If you are considering a home equity release, it is important to understand exactly what it entails and seek professional advice regarding the different policies available.
General information about equity release plans is widely available on the internet. There are many equity release FAQs available online, and this can give you a basic idea of what equity release means, as well as the associated benefits and risks. However, it is necessary to take advice from an independent financial expert about the specifics.
An independent financial adviser who has specialist knowledge about equity release plans and home equity release will have up to date information about different products and providers, as well as about which product is suitable for your particular situation. Another important factor is that an independent advisor has no affiliations to equity release providers and can therefore give far more impartial advice.
An equity release mortgage is a loan taken against the value of the house. Both home reversion loans, as well as lifetime mortgage equity release loans, need to be repaid to the lender once the house is sold. However, the house can only be sold after the owner has died or moved out and into permanent care. In case of joint applicants, this is done after the second applicant has died or moved into care.
When it comes to ownership, there is one key difference between lifetime mortgages and home reversion equity release plans. Home reversion involves selling part of the house and lifetime mortgage involves taking a loan against the house. As such, in home reversion the ownership of the house is transferred to the lender, and in lifetime mortgage, full ownership remains with the borrower. In both cases, the applicant is fully responsible for the maintenance and upkeep of the house.
There are many equity release providers and increased competition in the market has resulted in more competition and better rates for customers. Also, improved and more flexible home equity release products are now available compared to mortgages available until a few years back. You can compare different equity release products on websites such as equity release supermarket.
Equity release schemes are essentially loans that one can take out against the value of their property. This loan plus the interest that has accrued on it over the years is repaid once the owner has died or moved into long term care, and the house is sold at market value. In a time when living costs are on the rise, home owners are turning towards equity release as an option for financial planning during retirement.
There are two main types of equity release plans, the lifetime mortgage plan and the home reversion plan. Lifetime mortgage is exactly that – it is a loan that is designed to last the entire life of the applicant, and is repaid along with the interest when the house is sold. The applicant legally owns the house and can live in it as long as they live or move into long term care. In case of joint applicants, the house cannot be sold until both the applicants have died or moved into care.
In home reversion plans, a part of the house is sold to the lender. Once the house is sold, proportional share of the sale value of the house is repaid to the provider. Home reversion is not a loan against the house, but a notional selling of part of the house. Both equity release plans accrue compound interest on the loans.
One of the main advantages of an equity release scheme is that you can continue to live in your own home. Of course, that it generates an additional income is also an important advantage, but this could also be achieved by downsizing. Applicants can live in their home for as long as they live. Many people also use equity release loans to pay for home care, so that they can go on living in their own home.
Once the applicants have moved out or died, the equity release scheme ends and the house must be sold. The applicant’s family cannot continue to live in the house after this, unless the full amount of the loan plus interest can be repaid immediately by some other means. In case of home reversion plans, the loan amount increases in proportion to the market value of the house when it is sold.
Sometimes it may be necessary to add another applicant to an existing equity release plan. In cases where joint applicants get divorced, it may also be necessary to remove an applicant from a plan. It is possible to do this, in theory, but is subject to the lender’s terms and conditions for that particular loan. It is therefore important to seek specialist advice and guidance before taking any step related to equity release.