What is equity release? It refers to an arrangement where you will be able to get a certain amount or money for your home property and at the same time you will be living in that property. It is not an arrangement where you will have to sell of your property. A loan will be advanced to you against your home property and you will have to repay the loan at some later stage, generally when you die. Equity release is a kind of arrangement that is especially useful for the elder citizens, who do not prefer to leave their properties to their heirs after they die.
You will be surprised to know that there are many elders who are now thinking of choosing equity release schemes so that they can make use of their money, which is locked in the form of their home properties. By opting for a good equity release scheme, you can enjoy your retirement days because you will be able to get the money for your home but you will not be selling your home. You will be paying back the money to the lender only when you die.
In the last ten years, there has been a boom in the UK property market and the values of many properties have increased significantly. When you opt for an equity release plan, you will be able to enjoy the increased value of your home by getting a certain amount of money against your home property.
The retired people will particularly find the equity release schemes attractive because when they choose an equity release scheme, they would be able to release a part of the money from their home property and use it wherever they want. This way they can easily increase the amount of money that they can use or spend.
There are different types of equity release schemes:
- Lifetime mortgage.
- Interest only.
- Home reversion.
- Shared appreciation mortgage.
- Home Income Plan.
- Sell and rent back or Sale and rent back.
Some of the advantages of this type of arrangement are:
- It offers a steady income (annuity) for the remaining part of your life.
- This arrangement can decrease the amount of inheritance tax.
- The interest of the borrower is protected by NNEG or No Negative Equity Guarantee, incase there is a downturn in the market (housing).
- Incase the rates of interest falls, you can refinance your mortgage at a lower cost.
Some of the disadvantages of this type of arrangement are:
- Incase the property value increases at a slower pace, as compared to the rate of interest on the mortgage, your family members will inherit lesser amount of money from your estate.
- The amount that you donate to charity would decrease.
After reading both the advantages and the disadvantages of the equity release schemes, you need to decide whether it will be wise for you to go for any of these schemes. Of course, most people believe that the equity release schemes are beneficial.
