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Equity Release Mortgages
Equity release mortgages, also known as house reversion or home income plans or, simply, lifetime mortgages –are a way of releasing this equity or cash, whether to buy a new car, to pay for a holiday or adding a new conservatory, or simply to cover day-to-day expenditures. These schemes generally allows you to loan money against the value of your house, repaying the debt only from the sale proceeds after your death.
Equity Release
After retiring from work, we are often in the scenario where we live in a house that has grown in value substantially over the years and may well be mortgage free. For most of us our house is our biggest asset, and with pension incomes possibly not keeping pace with general cost of living increasing, more and more people are looking at ways of releasing this equity capital in their own home.
Equity release is the term used to describe the ways you can do this to either provide a regular income and/or a lump sum.
There are 2 main kinds of equity release scheme known as lifetime mortgages and home reversion schemes. With lifetime mortgages, the mortgage is repaid from the proceeds when you die or for example on moving into a nursing home. In the case of a home reversion you sell all, or a percentage of your home, to a third party and the lender will receive the appropriate percentage value of the property when it is sold.
You can usually take a scheme in joint names ( spouses or relatives ) so that it continues until the second death.
If you release cash from your property you might give it to beneficiaries now for example to be used for school fees for grandchildren, or as a method of Inheritance Tax planning. Alternatively it may be invested as an annuity to provide a regular income for life.
Equity release mortgage is a very specialised type of loan and should be discussed in great detail with all those who may have an interest in the property before being entered into.
EQUITY RELEASE PRODUCTS - RISK WARNING
Equity release schemes can be very helpful but may not be suitable for everyone. It is important to understand the risks and the cost, the level of flexibility and the possible impact on future state benefits.
The FSA (Financial Services Authority) produce a very useful guide to Equity Release which highlights things to consider such as :
i) whether the scheme has negative equity guarantee, so that if the value of your property decreases any outstanding debt after sale of your property won't be passed on to your next of kin
ii) whether the equity release mortgage lender will allow you to move home should you want to
iii) on-going responsibility for maintaining the property and the associated costs
iv) the terms and conditions of leases for home reversion and under what conditions you could lose your home.
The equity release mortgages market is complicated. Should you wish to discuss your situation with an equity release mortgages specialist, click
here.
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