Using Home Equity Release Schemes to Build a Better Life
Equity release schemes are a reliable way for homeowners, mostly those over the age of 55, to capitalize on the investment they have made in their home or property. Through release of equity, homeowners are given a cash sum, income, or a combination of cash and income while being afforded the opportunity to stay living in their home. Through these options, the homeowner still owns the home while they are alive.
There are several reasons why seniors look to take part in home equity release schemes. As the population continues to live longer, many are finding it more difficult to retire in comfort. By taking part in a home equity release scheme, it becomes more popular for some homeowners to live a more comfortable life and retirement.
The release of equity can primarily occur through two different options, home reversion plans and lifetime mortgages. Through a home reversion plan, the homeowner sells some or their entire home to a lender or company. In return, the homeowner is given a cash lump sum of money while staying in their home rent free. This cash sum can be life changing for many homeowners and it can be used for anything. This money can provide a better retirement or can help with monthly expenses. It could pay for a holiday or help parents provide for their children during the recession.
Home reversion requires you to be 65 years of age. You can decide how much of your home you sell. Unfortunately as there are positive benefits there are also negative issues associated with home reversion. You do sell your home upon death or when you are no longer able to care for yourself. It means a family home may not remain in the family. Also with home reversion you are given a lower amount of money than the actual home value even if you sell the entire house. This is due to profit margins for the equity release providers.
Providers wish to make money so they will give you a sum that is lower than the current value. They will sell the home and take the difference of what they paid you and the value. You can stipulate in the agreement if your home increases in value too much that the remaining amount be given as inheritance. This protects you and your family from losing too much in the deal.
A lifetime mortgage is when a homeowner takes out a loan against the value of their home or property. This loan comes in the form of a cash lump sum for the homeowner to use as they see fit, or for whatever they need or want. Generally speaking, the homeowner can release anywhere from 18% to 55% of the value of their home or property.
Lifetime mortgages are available in four forms. You have roll up, drawdown, enhanced, and interest only lifetime mortgages. Each has a specific benefit that makes it different from the other and that might help it fit your needs a little better when it comes to release of equity.
Drawdown mortgages offer you a small lump sum and then instalments. The instalments can be taken when you wish. You do not pay interest on the amount you have not removed from the release account. Instead you pay interest for what you use. This could keep you from spending all your equity rather than leaving some for inheritance.
Interest only loans are the only type of lifetime mortgage that requires a monthly payment. You pay the interest monthly. You do not pay any of the principle balance until death or you move to a new home. Since you do not pay interest, this will keep a potential for inheritance payouts to your beneficiaries.
Enhanced lifetime mortgages are yet another type and the most special of lifetime mortgages. This is because they are for people that have serious illnesses or disorders that can lower life expectancy. A larger lump sum is given out since it is going to be returned faster than usual or at least that is the premise behind this type of loan.
Using one of these options for equity release allows the homeowner to use their money and equity for whatever needs they may have. This can be life altering for the homeowner, in that the individual or couple can use this extra income or lump sum to fulfil any needs that they may have. Release of equity can be used for a comfortable retirement, travelling, or taking care of other family members. You choose!