Choosing Between Equity Release Schemes – Which Is Right For You?
What’s got you thinking about equity release schemes and retirement mortgages? Do you want to raise the maximum against your property? Or perhaps you want to leave an inheritance? Whatever your priorities, you need to clearly understand the different equity release packages.
The main equity release packages
Several different types of equity release package (also called retirement mortgages) are available. While this gives more scope to match products to your specific needs it adds to the complexity of your choice. Here are some of the options:
1. Home reversion plans
2. ‘Roll-up’ lifetime mortgages
3. Lifetime mortgages – fixed repayment equity release schemes
4. Non ‘roll-up’ Interest-only lifetime mortgages
A brief introduction follows, but there’s no substitute for advice from an independent specialist who can explain everything and answer all your questions.
Home reversion plans
With a home reversion plan (HRP) you sell all or part of your property to a provider in return for a lump sum or income. The maximum release varies between providers and is based on the property’s value and your age.
HRPs can be the perfect equity release packages for people who don’t want to make monthly payments, want to raise the maximum possible lump sum and don’t need to leave an inheritance.
‘Roll-up’ lifetime mortgages
With these you won’t pay monthly interest. Instead, interest ‘rolls up’ and is added to the loan. When the property is eventually sold, typically on the second applicant’s death or if they go into care, the original loan plus accumulated ‘rolled up’ interest is repaid. Providing the scheme was set up with a supplier operating under the Safe Home Income Plans (SHIP) trade body the debt won’t exceed what your home is sold for.
This product could suit if you don’t want to make monthly payments and you’re optimistic that future property value increases may partially offset the increasing balance of the loan.
Lifetime mortgages – fixed repayment equity release schemes
These schemes give a lump sum or regular lifetime income. Unlike their interest-only equivalents, you don’t pay monthly interest and interest doesn’t ‘roll up’. Instead, when your home is eventually sold, you pay the lender an agreed sum that’s larger than the amount you borrowed. SHIP-approved equity release schemes still guarantee your right to live in your property for life. a ‘roll-up’ lifetime mortgage you also get a ‘no negative equity guarantee’.
This option is suited to someone who doesn’t want to make repayments, who wants to know the eventual amount owed from the outset, and who wants to be sure some inheritance will remain.
Non ‘roll-up’ interest-only lifetime mortgages
An interest-only lifetime mortgage is essentially a normal mortgage without capital repayment. Instead, your interest-only payments to the lender mean the amount borrowed won’t change. Capital is normally repaid on the death of all applicants, but you could repay it earlier. Only a few lenders offer this option, which may suit applicants with surplus disposable pension income for whom leaving an inheritance is very important.
Choosing between schemes
Because the equity release market is so specialised it’s vital to get professional advice from an independent advisor. These schemes won’t be right for some people: for instance, downsizing may cost you less and, depending on the scheme, you could lose entitlement to state benefits and grants.
Choosing between equity release schemes is one of the most important decisions you’ll make. Get good independent advice and a personalised illustration, choose wisely and look forward to cash when you need it most – and maybe a bit left for the grandkids too!
When the time comes to retire one of the first things that comes into your mind is, So just how am I going to manage financially? Equity Release could be the answer and Graham Baylis has been working with a firm which could help www.berkleyvittoria.co.uk