What is Equity Release?
An equity release scheme can be a great way to experience some financial freedom if you are a homeowner over the age of 55. There are a few different options available to you and with proper guidance, you can find a plan that works for your individual situation.
Equity release allows you to release your property’s value and receive it as either a one-time cash payment or a source of more regular income. There are several plan options available, but most do not require that you make any repayments against your loan balance. In every case, you are able to stay living in your home until its final sale, which typically takes place either when the last remaining homeowner moves into long term care or passes away.
The money that you receive from the equity in your home is tax-free and you can use it on whatever you’d like without restriction. Many homeowners choose to use the cash to live a more carefree lifestyle during their retirement while others choose to pay down debt or make improvements on their home. Many also choose to financially help their children or grandchildren.
To understand whether you qualify for an equity release scheme, or even the impaired products, use our free smartER research tool.
Benefits of Impaired Equity Release Schemes
There are many benefits to using an equity release scheme. To start, you can use the money however you want. It is simply yours to spend freely. It is also tax-free and you can receive it in a variety of different ways. Some plans offer a larger one-time cash payment while others provide you with a more regular income via several smaller payments.
Secondly, many homeowners find that they are forced to downsize their property in retirement. With equity release, you can avoid any kind of downsizing.
Thirdly, your family will not be held responsible if the sale of your home does not cover the outstanding balance on your equity release product. This is called a no-negative equity guarantee. This means that the amount you owe is not impacted by changes in home prices.
Equity Release Types
There are a two different types of equity release products, lifetime mortgages and home reversions. Home reversions were once quite popular but have quickly been overtaken in popularity by lifetime mortgages. Despite that fact, they still offer all of the same options that originally made them so popular. Lifetime mortgages offer several different plan types.
Lifetime Mortgages
Now the most popular form of equity release, lifetime mortgages are a loan you take against your property. You retain full ownership of your property and you do not have to make any monthly repayments against your balance, unless you choose a plan that allows you to do so.
There are many different types of lifetime mortgages available. That means that there are also many different options, some of which are listed here:
• Preserve a part of your home for inheritance purposes by using what is called an Inheritance Protection Guarantee.
• Make repayments against your loan balance, either regularly, monthly, or ad-hoc to help control your overall balance.
• Benefit from future withdrawals by using a drawdown product
• Take advantage of other unique features such as early repayment or downsizing protection
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Home Reversions
Home reversions function quite differently from lifetime mortgages. With a home reversion, you do not take out a loan against your property. Instead, you sell off a percentage of it to your equity release provider. You receive a cash payment in exchange. That payment is often less than you would receive if you sold the home in a more traditional way, since you are able to stay living in the home for the rest of your life without paying any rent.
With home reversions, you are able to safeguard an inheritance for your loved ones. When your home is sold, the proceeds are divided according to the ownership percentages. So, if you sold off 25% of your home to the lender, your estate would receive 75% of the sale proceeds while the lender would get 25% of the proceeds.
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Considerations
Equity release products can seem confusing at first, but with the proper guidance and advice you can find a product that works for you. Reach out to our experts today to receive specialized advice as it relates to your particular circumstances. Or call our freephone on 0800 023 4623.