A Close Review of Equity Release Schemes

For people who have retired or have left their jobs because age is catching up with them, maintaining their lifestyle becomes a problem. With no regular income to cover the monthly expenses including debt repayment, managing the finances becomes extremely difficult. The amount in a bank account can vanish pretty quickly in such cases. Equity release schemes remain one solution to the problem of cash after retirement. People around the age of 55-90 are eligible for these schemes. The advantages of a lifetime mortgage can help you generate cash from the equity of your own house.

There are two major types of equity release schemes: namely lifetime mortgage and home reversion plan. Lifetime mortgages are the most popular type of equity release scheme and in using this scheme people can get a lump sum amount or a monthly income (or both) with interest being charged on the equity of the house. Since repayment isn’t expected, the loan offered here is repaid upon the sale of the house once the owners go into long term home care or pass away.

Home reversion is the other major type of equity release scheme. With a home reversion scheme, house owners can sell a part or all of their house to the reversion provider while getting a sizeable monthly income or a large lump sum amount as well as retaining the right to live in the house till they die, or go into long term care.

The advantages of a lifetime mortgage are that you don’t really have to ‘sell’ your house rights as the loan is offered by the company on the equity in your house. You or your family can continue living in it if you can repay the entire amount loaned out to you with interest. However, with a home reversion plan, you would give up your house ownership partly or entirely in return for a cash lump sum or monthly income. While you will have the right to live in the house for as long as you live, your coming generations might not be able to live in it as the company owning the house may sell it once you move out or die.

A Clear View of the Advantages:
Lifetime Mortgages                                                                  
•    You keep your home
•    You can obtain a lump sum or monthly payments
•    You repay the loan with a sale before or after death

Home Reversion Scheme
•    A portion of the inheritance remains
•    Lump sum or monthly payments are available
•    You can remain in the house until death or long term care

In both schemes it is possible to remain in the home. The difference is in ownership because the home reversion scheme means part or all of the ownership is through the lender. It creates the issue of future generations being unable to remain in the home after you are gone. Despite that it is a guarantee of inheritance, in cash form, should there be a percentage not sold to the home reversion provider. It also guarantees the home will be sold upon your death, thus guaranteeing a portion of inheritance.

Lifetime mortgages provide a loan that must be paid off, so house ownership is still in the family; however, future generations may need to sell it in order to pay back the equity mortgage held on it. One way to avoid this issue is to pay interest on the loan during your lifetime. This keeps the amount to be repaid at a lower level and perhaps more affordable to future generations.

The maximum amount that can be taken out using both the schemes varies and depends largely on the valuation of your house and your age. The younger you are the less money you will be offered; while the older you are the more money you will be offered. The amount of money is based on life expectancy and the need for money later on for someone who is younger and still able to work.

Go through your requirements and understand the consequences of signing up for any of the two schemes so as to extract the results that would benefit you at the end of the day. Remember to look beyond the advantages of a lifetime mortgage; there are also disadvantages that can make one type of equity release better for your situation than another. The best way of ascertaining which scheme is better is from the use of an equity release calculator offered by companies such as Equity Release Supermarket.