Equity Release Mortgages
These work by securing a loan against a property that you take either in full or as a monthly income, the interest on the loan is capitalised and is repaid when the property is sold, you do not make any monthly payments.
The Benefits of Equity Release.
You gain an income from your house without moving home.
Many people reaching retirement age are asset rich and cash poor, and do not want to sell their house to release funds; an Equity release mortgage may give you what you need.
But a note of caution these schemes are not for everyone; they can be expensive and your equity can be eroded quite easily and should always come with a no negative equity guarantee meaning you will never be asked to pay back more than the value of the property.
How do Equity release schemes work?
There are a couple of variables to the equity release scheme; fundamentally you are releasing part of your equity in the form of a loan to be repaid when your house is sold.
The two variables.
Lifetime mortgage
A loan is secured on your house and interest is added to the loan normally monthly, you do not need to make any monthly payments as your loan will be repaid when the property is sold.
Home reversion scheme
You sell part or all of your home to a home reversion company and that company can only sell their stake in the property when you die or move into care.
Am I eligible for an equity release scheme?
To qualify you need to be
- A homeowner
- Over 55 years old
- Own your own property.
These are guidelines but your broker will be able to discuss the details with you.
What are the risks and benefits of the Equity release scheme?
For many, an equity release scheme can be quite scary but for others, they are a lifeline that makes a lot of sense.
You will receive an additional income; if you select this option try to draw down payments on a monthly basis it will keep your interest as low as possible, the money is tax-free.
Taking money from the value of your estate will reduce any inheritance tax liability.
On the downside of Equity releases, the equity in your property is reduced leaving less for your family when you die, but on this point, it is worth discussing Inheritance tax with your adviser.
As you have an equity release scheme on your property moving home may prove difficult and charges can be high.
It’s important to look at all the terms and conditions when taking a loan.
Points to consider when taking an Equity release scheme.
First, you need to consider getting professional advice, look for a broker that has experience in Equity release schemes.
Only consider schemes that are backed by the Equity Release Council as they will have a number of guarantees’.
There are other options available to you such as taking a loan against the property or moving home, these both have downsides in that a loan needs to be repaid and you should not underestimate the cost of moving house even if you are happy to do so.