Retirement is an inevitable part of everyone’s life. The best advice is to get ready psychologically and financially for your retirement. However, some people do not plan for their retirement and often find themselves in a financial crisis at the time of retirement.
Equity Release is an option for the unprepared Retirees!
Equity release is an excellent personal finance option that allows elderly people to take the advantage of their house or other assets that hold some equity.
According to Wikipedia,
“Equity release is a means of retaining use of your house or other object which has capital value, while also obtaining a lump sum or a steady stream of income, using the value of the house.
The “catch” is that the income-provider must be repaid at a later stage, usually when you die.”
In U.S., reverse mortgage is similar to equity release only and it is available to elders who are aged 62 years or more. Equity release depends upon the current value of your home and the outstanding debts against your property. The equity available against your home is the different between its market value and any outstanding debts against your property. It allows you to unlock the equity of your home and receive a lump sum amount with zero taxes. There are different types of arrangement that homeowners can come up with.
What are the different options available in Equity Release?
- Lifetime Mortgages: Lifetime mortgages are loans that you can take against the value of your home and it is the most common types of equity release schemes people opt for. As the homeowner, you retain the title of the house and bear all the ownership costs. The principal amount and compound interest is paid at the time of the death of the owner. Lifetime mortgages constitute for more than 99 percent loans in the current market.
- Home Reversion: Under home reversion schemes, the borrower sells a particular share or their entire house against a lump sum amount. Most of the elderly choose for an annuity against their house and they can live in the house for as long as possible.
- Home Income Plan: Home income plans are similar to lifetime mortgages and it usually involves insurance companies as the providers of money. In most of the cases, lending companies offer annuity against the capital.
- Shared Appreciation Mortgage: Homeowners can borrow a capital sum in return for a percentage of future growth of their property. The borrowers have the right to live as long as they wish for in the property. The share of future growth usually depends on the growth and age of the homeowner.
- Interest Only Schemes: Under interest only schemes, the borrower needs to pay only the interest against the capital loan while living in the property. The capital is paid after the death of the borrower.
Why should you opt for an equity release scheme?
Many people consider equity release as the last resort for their retirement. It is extremely beneficial for single elders with a property. Some of the most important advantages of an equity release are:
- Equity release can offer tax-free cash or annuity to the borrower.
- With No Negative Equity Guarantee (NNEG), homeowners receive protection against a market slump.
- Equity release can lower the inheritance tax against the property.
- Borrowers can refinance the mortgage if the interest rates fall in future.
However, there are a few factors to consider while choosing an equity release scheme. First, the inheritance received by your family will be comparatively lower. In addition to it, it is an expensive affair as compared to selling the house for equity release.
If you are looking for a financial support during your retirement, equity release can provide that relief. Make sure to study the conditions in your equity release scheme and its cost before choosing it.