Individuals who own their homes have equity that is tied up in the property. One way to release this equity and be able to use it to boost cash flow is by implementing an Equity release scheme.
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Equity release allows individuals who are over the age of 55 to free up the tax-free cash that is associated with the value of their home. This money can then be acquired through a lump sum or a flexible withdrawal payment to receive funds when needed. Many individuals also use this as a retirement supplement.
What Are Equity Release Schemes?
Equity release schemes are designed to be used for the homeowner’s lifetime, and the cash can be used for any application the owner wishes.
The cash that is released from the home is then repaid when the homeowner passes away or moves to a long term care facility when the house is then most traditionally sold.
Upon the sale of the house, the equity release will be repaid. The repayment period for these circumstances is 12 months and funds that are left over after repayment will go to beneficiaries.
Equity release schemes that are available in the United Kingdom have recently started offering the option of making monthly payments toward the balance of the equity being used and the borrower also has the option of paying just the principal balance or the principle and interest.
The decision to make monthly repayments will in part depends on the borrower’s finances and whether or not they can afford the additional payments each month as well as the inheritance they wish to leave for beneficiaries.
What Types of Equity Release Plans are Available?
There are several equity release schemes and lifetime mortgage schemes available for individuals who are over the age of 55. Some of these options include Lifetime Mortgages, Interest Only Lifetime Mortgages, Drawdown Equity Release, Home Reversion, and Home Income Plan.
Choosing an equity release plan will always depend on the borrower’s unique circumstances, and care should always be taken to make an educated decision about which scheme will fit his or her finances and overall needs.
Lifetime Mortgages are one of the most popular types of equity release schemes. This is a loan that is secured against the value of the home and is exchanged for a tax-free lump sum of money or as supplemental income.
Lifetime Mortgages charge a monthly interest at a fixed rate and are not repaid by monthly payments but added to the value of the overall mortgage. The balance, including all interest, is then repaid when the property is sold, and all remaining funds are given to beneficiaries.
Another popular equity release scheme is the Drawdown Lifetime Mortgage. This option is similar to the popular Lifetime Mortgage but with added flexibility. This scheme provides the borrower with a cash reserve facility in which they can take any amount from initially, and the remainder will be reserved for future withdrawal.
The advantage of the Drawdown Lifetime Mortgage is that interest charges will only apply to the amount of funding that is withdrawn from the reserve, helping to save money overall. Further down this page you will find a comprehensive section on this type of scheme and will be able to decide if it’s a good match for your situation.
The decision to release the equity in a property is a big decision and homeowners should always discuss this idea and the options with their partners and family members. It is also essential to seek the knowledge and advice of an independent equity release specialist to make sure this process is a good decision.
An experienced advisor will be available to help the borrower decide if equity release is the best course of action to increase cash flow or if there are other, alternative options available.