We keep shelving our dreams every day, and sometimes we don’t get the chance to dust off those shelves and claim what we’ve always wanted to have or achieve.
Well, thanks to science and psychology, almost 40% of people today get to live past their retirement. Even better is that those over 55s get to enjoy some of the best moments in their life due to the capricious nature of the Zeus of all financial products – equity release.
It enables them to untie the equity that’s tied up in their homes and use the money they release how they wish, and they don’t have to pay this cash until they die or move into permanent care.
Now, you might find yourself confused, wondering what this gibberish is all about. Don’t worry: in this straightforward guide John Lawson, an Equity Release Expert at SovereignBoss will help you understand equity release and all the perks that come with taking out a plan.
In case you know what it’s all about and you want to see how much equity you’re eligible for, be sure to check out how much you can unlock with the equity release calculator.
What is Equity Release?
It’s a financial plan that lets homeowners who are 55years+ reap the benefits of having equity tied up in their estate and turning it into a cash lump sum or regular income.
Unlike most conventional mortgages, with equity release schemes, you don’t have to make any monthly reimbursements, and they let you continue living in your residence until you pass away or move out permanently. Only then is your scheme customarily reimbursed from the sale proceeds of your house.
The capital you release is also tax-free, and you have the financial freedom to spend it on what you want – meaning you get to tour the world, make home renovations, offer your kids a living inheritance and blissfully enjoy your golden years.
You’ve always wanted to go to Mykonos, refurbish your kitchen and buy that e-bike, well, now, with equity release; you can have the funds to do that.
The Types of Equity Release
There are two primary forms of equity release. They’re:
1. Lifetime Mortgages
It’s a loan for an agreed amount of tax-free cash secured against your property, and it’s available to homeowners aged 55+.
You continue to own the property, reside there rent-free, and don’t make monthly repayments.
Instead, the capital you borrow and any interest accrued is paid back when you breathe your last or go into residential care permanently. If there is any equity left over once the loan has been repaid, this then goes to your estate.
2. Home Reversion Plans
The plan lets you sell part or all of your estate in return for a tax-free lump sum or a monthly income. It’s available to homeowners aged 65+.
The price your scheme provider pays is below the market value since the plan also offers you the chance to continue living in your residence, rent-free until you pass on or move out permanently.
When this happens, your lender then puts up your manor for sale, and you or your property will receive the value of your share – it’s usually the amount your residence sold for minus the percentage you sold to the equity release provider initially.
The Differences between Home Reversion Plans & Lifetime Mortgages
There are two main differences:
1. Home Ownership
With a lifetime mortgage, you still have 1000% ownership of your house. However, with the home reversion scheme, you don’t have this right since you sell all or part of your property.
2. The Interest Payable
With a lifetime mortgage, the interest compounds over the years, thus increasing the amount owed when the estate is eventually sold.
With a home reversion plan, however, there’s no interest to pay or reimbursements to make. Your plan provider allows for interest in the price they pay for the share you sell them, and you continue to reside in your estate rent-free.
Considerations to Make before Taking out a Plan
If you’ve done your due diligence and seen that equity release is what your life is missing right now, here are some tips you need to consider before signing that contract:
- Make sure to counter-check your plan provider’s credentials and that they’re members of the Equity Release Council. The ERC’s members are required to offer you the ‘no negative guarantee’ that ensures your heirs don’t owe more than your estate’s worth
- Make sure that before you get into these schemes, you get professional advice. Ensure that you consult an expert financial adviser with an equity release qualification to find the most suitable contract for you and one that matches your lifestyle
- Know that equity release can affect your benefits. Having liquid cash rather than a property, which is an accruing asset, can have a substantial effect on the benefits you’re entitled to. For instance, pension credit, jobseeker’s allowance, income support universal credit, and others may be reduced or lost entirely.
If you want to achieve those lifelong dreams of touring the world or making significant home improvements, drop everything and call up your financial adviser!