Retirement is undoubtedly a major turning point in our lives. Besides reminding you about getting older, it does put certain financial restrictions on you. Reduced monthly income is one of the major problems faced by many retired individuals and senior citizens. In such a case, it can become difficult to manage monthly expenses and property maintenance issues.
So how can equity release schemes help?
Equity release schemes are specially designed for senior citizens, particularly those aged 55 and over. By considering whether equity release schemes can be of assistance, retired individuals can get access to a lump sum or regular monthly income or even a combination of both from their property.
Moreover, an equity release scheme also allows you to continue residing in your home with no further monthly payments required. This is an important difference from any residential mortgage, as you cannot default on the monthly payments and thus risk having your house repossessed. It therefore alleviates any concerns of affecting your credit history and finding the cash to pay the mortgage which was probably the biggest financial and possibly stressful commitment during your working life!
The most popular type of equity release schemes are lifetime mortgages. Here, ownership of your property remains solely in your name at the land registry, with no transfer of ownership. This provides you with the peace of mind of knowing that any alterations and improvements can be made with minimal fuss and confidence.
Equity release schemes can therefore be a great option for retired homeowners to release tax free cash from their property. Equity release plans are basically classed as a release of capital from your property; hence, there is no tax to pay on the initial release from the provider. Consequently, your money can go further and can be used for paying off the mortgage, buying a new car, going on holiday, debt consolidation or for any other purpose. Equity release companies do not place any restrictions on how the funds are utilised.
To suit individual needs, different equity release schemes are available. These include home reversion, lifetime mortgages and pensioner interest only mortgages. Prior to opting for equity release, ensure that you do thorough research on the terms and conditions of the different loans open to you.
Taking independent professional advice would be a wise decision. Based on your preferences and needs, professionals can advise you about the best equity release option and save many £1000’s over the long term and ultimately benefitting your children and beneficiaries.
Disadvantages of Equity Release Options
Each product available to you will have different advantages and disadvantages. In saying that, there are certain main negatives to discuss. Since the equity release is based on current home value and that can change towards a negative value there is worry of lowering or removing all the inheritance options you wish to leave.
If a negative equity situation occurs on your home with a mortgage release, there is a clause to protect your beneficiaries from having to make up the difference. If you do not see this clause make certain that you ask for it to be put in there. This is the only way to protect your family from having to pay more after the house is sold.
You can also choose from two options that would make it easier to leave an inheritance. As senior citizens age there is not always a reason to keep the home in the family. If leaving cash is more important than keeping the home, you can go with home reversion.
Home reversion allows you to sell your home all or in part. By selling your home you gain access to the cash you need and any unused portion of home equity goes to your family after your death.
The other is the more desirable interest only mortgage. You retain ownership of your home as stated above and you also leave only the principle balance of the mortgage behind. Since you pay the interest you allow for the sale of the house, where the principle balance is paid. Any money that does not pay for the lump sum goes to your family.
Speak with your family and make them understand what senior citizens must go through with regard to retirement funds. This is the only way to ensure you and your children understand the need for such a project as equity release. It may not always work out for you and that is okay because your family could come up with a better choice. Just make sure to speak with a qualified advisor first.