As you enter into your retirement years often it can seem frustrating that you are unable to tap into the equity within your own home. In many ways you can end up being “asset rich, cash poor”. The retirement years should be an enjoyable time of life and not one in which scrimping and saving is a daily necessity. If you own your own home then there is a way to tap into the equity within your home and release some of it at a time when you either need to or would like to, in order to enrich your twilight years. Simply search for equity release companies providing schemes that appeal to you.
Equity release schemes offer financial help and there are many equity release companies across the UK who can now assist the over 55’s in being able to enhance their retirement provision. Diversity and research are key to finding the best equity release plan amongst the plethora of schemes, rates, deals and options available.
In order to find the right equity release scheme for your individual needs, it is recommended that you follow a number of key steps:
• The first thing to do is shop around. You can either do this yourself or use one of the comparison websites available. If you are less internet-savvy then it is always a good idea to approach reputable financial institutions and enquire about what they offer. A number of reputable financial institutions offer equity release schemes.
• Another way of finding the best equity release companies and the schemes they offer is to contact the Equity Release Council (formerly SHIP) who has a ‘find an adviser’ section whereby they can locate a local equity release adviser. All of their providers must adhere to a strict set of rules which offer the customer a great deal of protection. Always remember that this is your home and therefore any contracts entered into must be done so with the utmost caution. You would not let a stranger walk into your home without first asking who he was and what he wanted.
• Also weigh up other options that are available as a means of releasing equity. Perhaps you could downsize on your property and release equity in this way, therefore still owning your own home outright. Often this has other benefits such as a reduction in household bills or being able to consolidate debts such as credit cards and personal loans.
Types of Equity Release to Research
Researching companies and products is easiest once you understand what is out there. You have two options of equity release schemes: home reversion and lifetime mortgage. Home reversion is a sale of your property in part or full. You remain in the home rent free with a tax free lump sum under a lifetime tenancy agreement. You do not have to move or sell the entire home until you are ready to move into a care facility or until your death.
Lifetime mortgage is an actual loan with compounding interest. It is a loan that must be repaid on your death or when you move to a long term care location. You can transfer the mortgage to a new property; however, if you pay off the equity release early there are penalties associated with it.
Under lifetime mortgages you have a breakdown of four types providing you with a choice in how you protect your home and your children’s inheritance. The most beneficial scheme is the interest only lifetime mortgage. It is also the most difficult because you must pay back the interest you accrue on a monthly basis. It leaves the principle balance to be paid at the end of your life or move to a care location. Since home value can change and you take out a lump sum, the principle balance remains unchanged; therefore, it may be easier to pay off with a sale of the home or by other funds your family has.
Drawdown mortgage choices are the second best option since you pay interest only on the money you withdraw from the account and not the entire amount available to you. This way you can withdraw money as you need it, but avoid taking too much out.
If you decide that equity release is right for you then make sure that you seek professional independent advice before committing to any contracts. Equity release companies are in the business to make money, so remembering this is not just a decision that affects you but also your children and beneficiary is imperative.