Equity Release – A good option ?

Retirement Debts is seeing a growing level of enquiries relating to Equity Release, which is hardly surprising in view of the very low returns being seen from interest rates on savings which are relied upon by many retired people who have put money aside for years expecting to live on the income from those savings.

At the same time, retired homeowners have more than £765 billion tied up in their houses which cannot be unlocked through the usual mortgage route which traditionally requires the prospective borrower to prove affordability and maintain a programme of repayments to the mortgage, which does not stand up based upon incomes solely from pensions.

Equity release is a way in which homeowners aged over 55 can raise cash from their property, though is not an option to be taken without a great deal of thought first. It’s a big step to take and one that should not be considered without gaining a full understanding of how these schemes work, and what is available to you.
Essentially there are 2 main types of equity release:

- Lifetime Mortgages
- Reversion Schemes

Lifetime Mortgages work pretty much in the same way as if you had remortgaged your house normally, but instead of making monthly repayments, the interest charged rolls up onto the sum borrowed and is repaid along with any cash withdrawn from the mortgage when the property is sold after the owner’s death. Some products may offer an option to pay the interest on an ongoing basis rather than let it roll up.

A variation of this product, which has become increasingly popular, is the ‘drawdown scheme’. Such an option allows the homeowner to take cash from their home in installments rather than in one lump sum, which can be beneficial in controlling the level of interest charged.

Reversion Schemes require that the homeowner sells a proportion of their home to the ‘reversion’ company in return for a cash sum.

Equity Release can be a very useful way of making your assets work for you, but it is vital that you gain the right advice and ensure that its benefits and pitfalls are fully understood before making any decisions. A good advisor will take you through all the types of schemes and ensure you find the best for your own situation.

Equity Release may involve a Lifetime Mortgage or a Home Reversion plan. To understand the features and risks ask for a personalised illustration. The information in this news article is for residents of the UK only. For more information call us on 08448 247 270.