If you own a home or own a major part of its value, equity release is a way of releasing cash out of the value of your home without moving. This process may seem simple, and would be seen as an easy way to get cash out of your property without losing it, but they offer risks.
To be eligible for an equity release out of your home, you’d have to meet some qualifications. These are:
- at least 55 years old
- owned property must be in the UK
- your property must be in good condition
- if you have an existing mortgage or secured loan on your property, you may still qualify for an equity release but it will depend on the value of your home and the amount of your remaining mortgage or loan. You’d need to pay off your mortgages or loans secured on your home at the same time as taking equity release.
- if you have dependents living in your home, equity release may not be the best for you. Your dependants must be aware that once you die or move into residential care permanently, they no longer have the rights to stay in your home
The highlights and lowlights of equity release are quite complicated. We’ve included some advantages and disadvantages of choosing Equity Release as an option, however it would be better if you should look for additional help such as from equity release advisers.
They will audit your financial status and check whether there are any other options that fit you. On the off chance that value discharge is the best option, they’ll give a proposal for you.
- you can get a tax-free one time payment or in smaller, recurring payments to give an added boost to your salary
- you can still live in your home until you pass on or move to permanent residential care
- you could get more profit when the value of your property increases
- equity release is transferable if your new home meets the guidelines
- you could still own your home even with a lifetime mortgage
- it decreases the value of your estate and the sum that will go to your recipients in your will. Estate is all that you own, including cash, property, assets and investments
- With a home reversion plan, the reversion company possesses all or a part of your home
- it would reduce your chances of getting benefits that are means-tested (or based on your income and capital) now or in the future
- on the off chance that you get care at home that are fully or partially funded by the local council, they may begin charging you or request that you pay mores
Means-tested Benefits. These are benefits that are based on your income. If your income demonstrates below the specified means, your eligibility increases. Since equity release increases your income, it could reduce your eligibility to get benefits.
Here are some examples of these types of benefits:
- Income Support – offered to people who are on a low income
- Jobseeker’s Allowance – paid for people who are currently seeking employment
- Employment and Support Allowance – offered for people who are having difficulty finding work because of their long-term medical condition or a disability
- Pension Credit – welfare system for people of pension age
- Universal Credit – social security payment that was designed to simplify the benefits system and to incentivise paid work
The Two Types of Equity Release
You’ll have the option to sell your entire home or a part of it, either you’d be paid for one time, recurring payments or both. Your home, or the part of your home that you’ve sold, is now owned by someone else. Unlike the typical selling of a house, you’re still allowed to live in it until your pass on or move to a different home.
You’ll not get the entire amount of your home or part of it. You’d earn around 30% to 60% of its value because 1) you still can live in your home, and 2) the creditor would have to wait for your death or when you move out.
A lifetime mortgage is borrowing money that is secured against your home, while still being the owner of it. You can decide to separate a portion of the value of your property for inheritance. Moreover, some providers may have the option to offer more to those with certain ailments, or even habits such as smoking.
You’ll be charged for an interest depending on what you’ve borrowed, which can be included in the total amount of the loan. At the point when you pass on or move into long-term care, the house is sold and the cash from the deal is utilized to take care of the loan.
Anything left goes to your beneficiaries. On the off chance that the sale value is not enough, your beneficiaries will have to pay what’s left off the value of your home from your estate. In the event that there isn’t sufficient money left from the deal, your recipients would need to reimburse any extra over the estimation of your home from your home.
To make preparations for this, most lifetime mortgages offer a no-negative-value guarantee. With this assurance, the creditor guarantees you (or your beneficiaries) will never need to take care of paying what’s more than the cost of your home.
This is the situation regardless of whether the debt has increased more than the property value.
Under the lifetime mortgages, there are two types:
- Interest-paying mortgage: You can also get a one-time payment, monthly or on specific dates. This lessens, or stops, the effect of interest to increase. You’d also be given a chance for you to pay off your capital. The sum of what you borrowed is returned when your house is sold towards the end of your mortgage term.
- Interest roll-up mortgage: You can get a one-time payment or paid on a recurring amount. You’ll get charged for interest which is added to the loan. This implies that you don’t need to make any regular payments. The borrowed amount, including the interest, is reimbursed towards the end of your mortgage term, when your house is sold.
The cost of equity release. You’ll still be responsible for maintenance of your home. There’s also a fee for your provider, then for legal fees to determine the terms of your loans. Valuation fees also are paid to confirm the value of your property.
It would be best to hire an independent valuation and legal advice so you could make the most out of it.
The painful part of equity release. If you’re unable to pay your monthly payments, this could hit a toll to you. For instance, if you acquire a loan worth £20,000 at age 60 with a 5.1% interest rate on your £120,000 home, and the amount you owe doubles about 14 years. So if you live until 74, you owe around £40,000. Reach the age of 88, you owe £80,000.
You can choose which type of equity release can help you out on settling your debts. With Getting out of Debt UK, we’ll help you determine if equity release is the best for you, and you’d still avoid economic challenges. Contact us today to arrange a free consultation.