Come retirement age, many pensioners soon hit upon the realisation that cash is required more than ever. Being the longest holiday of one’s life and having more leisure time than ever, money can soon become in short supply. So what are the alternatives?
Other than the non-financial options such as downsizing, using one’s savings or investments, claiming any means tested benefits due, asking relatives for financial assistance, there are still two further means by which people can remain in their current home.
Equity Release Mortgages
These options are either equity release schemes or interest only mortgages in retirement. An equity release scheme works by releasing a tax free lump sum from the property, dependent upon the age of the youngest property owner and the value of the property. The interest charged by the equity release providers is added to the balance of the original amount borrowed. Therefore the balance grows over time, almost doubling every 10-11 years.
In contrast an interest only lifetime mortgage plan, such as the Halifax Retirement Home Plan will also achieve the aim of releasing tax free cash from the property. However, these schemes require there to be some form of regular repayment. This is usually the interest only element. As a consequence of the interest being repaid, the balance will always remain the same. When it is a retirement mortgage it is still an equity release scheme. There are interest only mortgages that are not lifetime, which are part of the traditional mortgage packages. Here the discussion is all about retirement.
Let’s have a look in greater detail at more of the differences: –
Interest Only Lifetime Mortgage
• Usually commence at age 65
• Interest only repayments required
• Balance remains the same throughout
• Amount borrowed dependent upon income
• No drawdown facility available
• Less stringent property requirements
• Not SHIP authorised
Equity Release Schemes
• Minimum age is 55
• NO monthly repayments required
• Balance increases with annual addition of interest
• Cash sum release based on age and property value
• Flexible drawdown schemes available
• Can have rigorous property requirements
• Schemes meet SHIP requirements
Therefore, much consideration should be given as to which scheme is taken out and done so for the right reasons.
Usability of the Funds
Something that has yet to be fully discussed is the benefits of lifetime mortgages in terms of how you can use them. For instance, you are able to use your lifetime mortgage funds for that grand holiday. Perhaps you always wanted to take a cruise around the world or one of the major cruise ships that offer the epitome of luxury. You can do this with your retirement mortgage.
Funds can be used to improve the condition of your home; therefore, increasing the value your home has. You can make changes that help adjust your home to your later life needs such as a walkway instead of stairs, elevator for the inside stairs and other modifications.
Funds can be given to your children for their first home, education needs, or to help out with the grand children. Since the money is tax free and it is for retirement you are able to use it in a way mainstream loans do not offer.
Being Wise with Funds
Just because you can use your lifetime mortgage funds as you wish does not mean there are only advantages. The more money you remove from your equity and accrue in interest, the less money remaining for inheritance. It can also mean your home will need to be sold to pay it back. If you would rather enjoy your life after working extremely hard there is no issue with that.
Be cautious only in that you could end up make things slightly difficult for your children or beneficiaries. Also keep in mind that the funds are currently tax free cash when you take them out in the loan and as long as you stay under Inheritance Tax sums and gift tax sums you can give your children an inheritance now, perhaps even when it will benefit them the most as opposed to years done the road then they are in a steadier income bracket on their own.
Experts in Financial Realms Available
Always seek the advice of an independent financial advisor who not only can offer advice on equity release, but also mortgages. Obtaining advice from such an impartial specialist mortgage broker and not from a company portraying themselves as just a specialist equity release broker, could pay dividends in the long run.