Equity Release Schemes Can Generate Cash Today
Thursday, March 11th, 2010The equity you have in your home is determined by the market value it has minus any secured debts you have on it such as an outstanding mortgage. An equity release scheme lets you get some of this equity in cash without the need to meet an ongoing monthly payment, and allows you to +still reside there. They come in two basic types.
The two types of equity release schemes are home reversion plans and lifetime mortgages. In both cases there is a minimum age for taking advantage of them. How old can depend on the company you end up working with but it is generally over 55 years of age, in some cases older.
In a home reversion plan, all or part of your home is sold to an individual or company. The cash is usually paid out in one lump sum. You are then able to continue living in the home as a tenant for free or, sometimes, for a very nominal fee. Your residence can continue until your death or until you move. The amount you will receive depends on your age as well as other factors such as the value of your property.
Lifetime mortgages come in several variations. With this type, you retain ownership of your home. Money is borrowed against the equity you have in your own and you keep paying your mortgage.
One type of lifetime mortgage plan is the Roll-up Plan. The money can be paid out in either a regular monthly payment or as a lump sum, and sometimes as a mixture of the two. Interest will accrue on the loan but is not paid until such time as the home is sold, either upon your death or your moving out.
The interest will accrue on the loan and all prior interest so when you take the loan in a lump sum, it adds up fast. With the drawdown version of this plan, the money is taken out in smaller regular payments or only as needed. This way, the debt does not grow as quickly.
Another variation is the interest-only mortgage. Here you take a lump sump payment but make monthly interest payments. The amount of the loan is paid off upon selling the home. However, keep in mind that if the interest rate is variable you might pay a lot more in the future. This is difficult if you only make a fixed amount each month.
With an interest only lifetime mortgage it can be possible to agree at outset a defined length of time that interest will be payable for, before the loan reverts to having the interest roll up against the loan. This is often considered by those below the age of 60 – 65 who are still able to afford the interest payments in the short term, but wish to have the security of fixing their lifetime mortgage rate now.
Home income plans pay off a lump sum which is then used for purchasing an annuity. This gives you a regular income, part of which is used to pay the interest rate each month. The rest can be used at your discretion. When your home is sold, the original loan is paid off. It is best to use this plan when you are older than just following retirement.
You have a lot you should consider before considering equity release. Make sure you understand all the factors. Getting professional advice can be a really smart move before you commit to something if you are not sure you understand.
An equity release allows home owners access to equity in the form of cash without having to sell or move out of their homes. We have got the inside information on lifetime mortgage