Equity release is a secured loan on your main residence helps the over 55′s to release tax free cash that has built up in the home over the years.
A description of ‘equity’ is the net assets of your property, equating to its value, less any loans or mortgages secured on it. This is the equity that you can withdraw to assist you financially in later years. This cash released can be spent on any purposes the borrower requires with no restrictions placed on how it is spent by the lender.
People find the most common useful reasons for releasing equity to be debt consolidation. This would involve settling any mortgages, loans or credit cards which are proving difficult to maintain.
Once these debts are repaid, they have the effect of reducing your monthly outgoings giving you extra disposable income to enjoy.
Other reasons for relasing equity could be a new car, home improvements, holidays or generally making your lifestyle more comfortable.
From my 10 years of experience in the equity release industry I have found the uses for the tax free lump sum to be limitless, but for many; life changing!
So how does equity release work?
These schemes provide you with a tax free lump sum or an income which can be used to help you financially in retirement. The plan has NO fixed term will therefore run for the rest of your own, or your partner’s life.
In return for the cash the lender will place a charge on the property when the house is eventually sold, the equity lifetime mortgage company will get paid first. If there are any funds left over, then the nominated beneficiaries in your Wills we receive the remainder.
As you can see, equity release is in effect is a mortgage but with no monthly repayments. Consequently, as there are no monthly payments on these mortgage schemes they have NO effect on your outgoings at a time of life when minimal expenditures maybe required.
Two forms of equity release schemes are available these are a lifetime mortgage a home reversion scheme: -
Lifetime mortgages have proved to be the most popular option. In essence these schemes are a form of retirement mortgage, but with interest added to the capital annually. The amount that will finally need repaying depends upon the duration of the paln term how much the property is sold for at the end of the day
In contrast, a home reversion plan operates by the applicant actually selling a fixed percentage of their home. The home reversion company will then retain a part or full ownership of the property . This percentage sold will be the amount that the reversion company retains when the final sale of the property is made. This results in a guaranteed inheritance for the beneficiaries.
