An Equity Release Scheme Can Help Provide Funds To Get By On When You Stop Working
An equity release is a way for people over 55 to take advantage of the equity they have built up in their homes. They can still live in the home but are able to use the cash during their retirement. There are advantages and disadvantages to doing this.
With an equity release mortgage, you are allowed to stay in the home until you die or move to a facility for long-term care. In the meantime, you are paid the cash value either in one lump sum or in payments. There are two basic types of equity release mortgages, the lifetime mortgage and the home reversion plan.
With a lifetime mortgage, interest will be charged and added to the amount of the principal. It will not be paid off on a monthly basis. Because of this, the amount that has to be repaid in the end will continue to increase. At the time the home is sold, upon moving or death, the loan and interest will be repaid.
Because there is no way to predict when you will die or move, there is no way to know how much you will have to repay. Because the interest is compounded, the amount to repay can grow so large that there is nothing or very little to leave your heirs. There is, however, usually a clause stating that the amount to repay cannot exceed the sale amount.
In a home reversion scheme, you sell off either part or all of your property. However, you continue to live in your home until you die or need to move to a facility. No interest is accrued. When the home is sold, the reversion company will retain the profit that is yielded. Because they have no way of knowing when they will be able to sell the home, they do not pay the full market value for your property.
Anyone 55 or over can qualify for a lifetime mortgage. Home reversion schemes generally require you to be 65 years of age or older. You must have either no mortgage or only a small one. You must be looking for a large sum of money so that it is considered to be profitable to the lenders.
Equity release schemes are regulated by the Financial Services Authority (FSA). In order to advise you on them, the advisers have to pass specialist exams. These laws are for the protection of the consumer.
If you think you could benefit from an equity release mortgage, do not rush into it. Research all the options you have and make sure you understand how it can affect you and your heirs. Then find a lender with a good reputation who can refer you to satisfied clients for their feedback.
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