If you are approaching retirement or already in retirement and struggling to make ends meet, then equity release could be an option to suit you. Before you make a decision it is advised you contact an independent financial adviser to discuss your individual circumstances to find out whether equity release is right for you.
Retirement planning can be a worry for many especially if your finances aren’t in order. Equity release allows you to release cash locked up in your home to spend as and how you wish. Popular reasons to release equity include, home and garden improvements, holiday and travel, helping family and friends, clearing debts (be careful before securing debts against your home) ease the costs of day to day living or to cover the cost of care.
There are currently three types of equity release schemes available on the UK market, these are; lifetime mortgages, drawdown lifetime mortgages and home reversion plans. All three schemes vary in their features and may or may not be the right move for you. Before you make any plans to take out an equity release scheme, speak to an independent adviser who is trusted in the market and that can offer you SHIP approved plans.
SHIP (Safe Home Income Plans) guarantee that you will;
• Never fall into negative equity, so the amount you owed can never exceed the value of your home.
• You can move if you wish without financial penalty (subject to criteria),
• Stay in your home for life.
Lifetime Mortgages: This type of equity release plan allows you to borrow money from the provider and the loan is secured against your home. You can remain in the home and remain the legal owner for as long as you wish. No repayments are needed to be made. The provider takes a percentage, which is a fixed rate, when the property is sold. This is usually when you die or if you move into long term care.
Home Reversion Plans: A home reversion plan simply means selling all or part of your home in return for a cash lump sum or income. When the plan ends, most often when you die or move into long term care, the reversion company sells the property, takes its cut and pays what is left, providing you didn’t sell 100 per cent of your estate. Until then you can live in your home for rent free. Because you are not paying significant rent the reversion company does not give you the full market value for the part you sell. For example, if you sold the whole property, you would typically receive 35-65 per cent of its value, dependent on your age. If you wish to buy it back you will need to pay the full market value of that portion.
Drawdown Lifetime Mortgages: Drawdown lifetime mortgages are more flexible for people looking to release money from their homes. Instead of taking out a lump sum up front when you start the plan, you agree a total loan amount with the lender but take the cash as and when you need it. After the initial loan amount, there is usually a minimum installment, you have to take. In most cases this is £2,000-£5,000. The advantage of this is that you only pay interest on the money you take rather than on a whole lump sum. It also removes the hassle of having to go through the process again if you decide to take more money out instead of paying all the costs involved a second time.
If you are interested in equity release you can find out how much you can release through a free equity release calculator today.