Equity release is an option for those over 60, to raise funds against the value of the individual’s home. The option is available if you are in a position where you have little or no mortgage on your property. Funds may be released using a lifetime mortgage or a home reversion plan. Therefore equity release is not necessarily for everyone but it offers the benefits of:-
– Tax free funds
– Financial freedom
– Cash release as and when you require it
If you are examining the option of equity release one must consider a few factors. Firstly, moving to a smaller property may release the funds you require, secondly, you may be able to claim benefits from the government which you are not already receiving and what will your family feel about the matter. It is imperative to be aware that equity release has the potential to change your entitlement to state benefits and it will reduce the value of your estate. Therefore you should discuss the decision in detail with a specialist legal advisor who will outline the risks of equity release and also the different processes of equity release that are available to you. The two most common forms of equity release are a ‘lifetime mortgage’ or a ‘home reversion plan.’
What Is A Lifetime Mortgage?
Lifetime mortgage releases equity against the value of your home, and a cash lump sum will be provided to the borrower. The lifetime mortgage is named as such as the mortgage is not required to be repaid and has no regular interest repayments required upon the sum until the borrower dies, the property is sold, or the borrower moves into long term care. When the borrower passes away or leaves the property the funds from sale of their property will serve to repay the loan amount. A lifetime mortgage is subject to a rolled up interest scheme; this means that interest is regularly added to the amount, even though it is not required to be repaid regularly. This means that over time the loan amount will significantly increase. To avoid the loan amount exceeding the total value of your property it is possible to enter into schemes which protect you against this. A lifetime mortgage is a long term commitment and early repayment may result in extra charges being added to your loan amount.
What Is A Home Reversion Plan?
A home reversion plan results in you sell all, or a part share, of your property to an investment firm. The investment firm will then provide you with a case lump sum based on the value of the property at the time of selling and based on your age. The company will then allow you to live in your property rent free until you die or until it is sold. The share that you have sold to the firm will then be paid to the investment company. This may be 20% or 100% of the proceeds of the sale of your home depending on how much you have sold on.
If you are considering a form of equity release, ensure you discuss your options with a specialist equity release lawyer.