Many people are worried about the prospect of facing their golden years with a limited or insufficient income. With the UK cost of living increasing and the prices of basic utilities becoming very high, many people about to retire are worried about their financial future. However, equity release could offer a solution which will allow you to enjoy your golden years fully with dignity and pride.
How can equity release help?
Equity release schemes allow you the opportunity to release the equity which is locked in your home. Unlike traditional methods of equity release that would require you to sell the property and move to a smaller and cheaper home, with equity release schemes you can obtain a cash lump sum or additional income with the assurance that you have the right to reside in your home for the rest of your life. The home is only sold to repay the loan when you pass away or move into a facility for long term care.
Can I qualify for equity release?
Each equity release scheme and provider will have different qualification criteria. However, there are some basic requirements. These include; a minimum age of fifty five, a minimum property value of £50,000 and a minimum amount of available equity of £10,000. It is still possible to obtain equity release even if you still have a mortgage or secured loan on the property. However, the equity release company will insist that the balance of the outstanding finance is repaid using part of the equity release.
How do lifetime mortgages work?
Lifetime mortgages are one of the most common forms of equity release. They are very similar to conventional mortgages with the exception that they are not for a fixed term. The duration of the lifetime mortgage is estimated based on your anticipated lifespan. This is calculated using a number of factors such as age and gender, and comparing them to national trends and statistics. There are a number of different forms of lifetime mortgage and they all work in a slightly different way.
• Roll up: These lifetime mortgages require no monthly payment. The capital balance and any accrued interest which is compounded to the balance is repaid at the end of the lifetime mortgage term. This can be beneficial for those with a very restricted income. However, it is important to be aware that the compound interest can affect the mortgage balance significantly. Typically the balance will double roughly every eleven years.
• Interest only: These are similar to a conventional interest only mortgage. The home owner makes a payment each month to cover the interest charges. However, unlike conventional interest only mortgages, there is no repayment vehicle needed, since it is understood that the property will eventually be sold to repay the loan. This is useful for those who are concerned about maintaining some equity for their beneficiaries. However, it may be necessary to provide proof that you have sufficient income to cover the interest payments each month.
• Draw down: This type of scheme creates a draw down limit instead of paying out an initial lump sum. The home owner can draw down funds up to their limit as and when required. The main benefit to this scheme is that interest is only attracted to funds which have been drawn down. Additionally, if you are concerned about losing your eligibility for means tested state support designed for your golden years, you need not worry about having a large lump sum sat in your bank account.
What exactly are home reversion plans?
Home reversion plans are a less common type of equity release. The home reversion company will effectively be buying up to one hundred percent of your home. You still retain the right to live in your home for the rest of your life, but you need not worry about loan balances and interest rates as you have signed over ownership of the property. This is a type of equity release which is best suited to those who are worried about loans and want to be sure of exactly what monies they have for their beneficiaries or golden years’ plans. However, you should be aware that you will have the responsibility to maintain the upkeep of the property and ensure it is kept in good condition for the home reversion company.
If you are concerned about financing your golden years, equity release may represent a good solution. However, it is important to consult professional guidance from an equity release adviser to ensure that you are aware of all the limitations.