Retirement is undoubtedly a major turning point in our lives. Besides reminding you about getting older, it does put certain financial restrictions on you. Reduced monthly income is one of the major problems faced by many retired individuals. In such cases, it can become difficult to manage monthly expenses and property maintenance issues.
So how can equity release schemes help?
Equity release schemes are specially designed for senior citizens particularly those aged 55 and over. By considering whether equity release schemes can be of assistance, retired individuals can get access to a lump sum or regular monthly income or even a combination of both from their property.
Moreover, an equity release scheme also allows you to continue residing in your home with no further monthly payments required. This is an important difference from any residential mortgage, as you cannot default on the monthly payments and thus risk having your house repossessed. It therefore alleviates any concerns of affecting your credit history and finding the cash to pay the mortgage which was probably the biggest financial and possibly stressful commitment during your working life!
Popular Forms of Equity
The most popular type of equity release schemes are lifetime mortgages. Here ownership of your property remains solely in your name at the land registry, with no transfer of ownership. This provides you with the peace of mind of knowing that any alterations and improvements can be completed with minimal fuss and confidence.
To suit individual needs, different equity release schemes are available. These include home reversion, lifetime mortgages and pensioner interest only mortgages. Prior to opting for equity release, ensure that you do thorough research on the terms and conditions of the different loans open to you.
Home reversion is a type of equity form most popular before the housing bubble burst. It allowed home owners to sell a part of their property to an investor. In return the investor would allow the owner to remain in their home until death or until the owner decided to move and sell the rest of the home. A lifetime tenancy agreement was signed by the owner to ensure they had rights to remain in the home.
The investment part takes time in this option. The buyer will wait for the home owner to move out and sell the home, but in turn the buyer only buys the house for lower than current market value. Also at the time of actual full ownership the investment company is able to sell the home at true market value recouping any money they provided the homeowner during the rest of their lifetime. It is why homeowners need to be 65 years of age for this release of equity, which is still possible to find albeit a little difficult.
Lifetime mortgages are easier to find and most popular in current years:
• A roll up mortgage allows the interest to accrue onto the loan until it is repaid in full. At death or move to a new location, the owner is responsible to pay the principle amount borrowed plus the rolled up interest. This is done through sale.
• Drawdown is different since borrowers take out a small sum at first and have access to more cash on an as needed basis. Interest still rolls up, but only on the actual funds withdrawn from the equity release account.
• Interest-only pensioner mortgages ensure the principle amount of the loan never changes. It is the only loan requiring a monthly payment. The interest based on APR is calculated for the monthly payments and paid until the loan is repaid in full.
Using Your Tax Free Cash
Equity release schemes can therefore be a great option for retired homeowners to release tax free cash from their property. Equity release plans are basically classed as a release of capital from your property; hence there is no tax to pay on the initial release from the provider. Consequently, your money can go further and can be used for paying off the mortgage, buying a new car, going on holiday, debt consolidation or for any other purpose. Equity release companies do not place any restrictions of how the funds are utilised.
Gaining Proper Details from Experts
Taking independent professional advice would be a wise decision. Based on your preferences and needs, professionals can advise you about the best equity release option and save many £1000’s over the long term; ultimately benefitting your children and beneficiaries. Based on the amount borrowed it is possible to leave an inheritance.