Tritton House,
14 Bath Road,
Swindon, Wiltshire
SN1 4BA
When you retire you want the quality of life and the assurance that you can continue to live the way you want to. Many homeowners have built up substantial amounts of equity in their homes and the only traditional way to unlock this is to move and downsize which you may not want to do. The answer may be to do an equity release plan.
Equity Release allows you to use some of the equity or money tied up in your property without moving home. It can provide a cash lump sum, a regular income or a mixture of both to do with as you wish, whether it’s for home improvements, a long awaited holiday or simply to improve your quality of life.
What Are My Options?
You must seek independent advice and once you have decided that using the money tied up in your property is the best option for you, you have a choice of ways to release cash. Selecting the right plan depends on many factors such as your age, the type of property you own and how much capital you want to release. This is why it is important to seek financial advice before making a decision.
Lifetime Mortgages
With a lifetime mortgage you take out a loan against the value of your home. The lender gives you a lump sum, a monthly income or a combination of the both.
Unlike a normal mortgage however, you do not make any payments on a lifetime mortgage until the property is sold. Instead the interest on the loan is added to the total owing. Because interest is rolled up in this way, the amount you will need to pay back when the property is sold can grow quickly.
Of course, the value of your property could go up even faster than the amount you owe. This could reduce or even eliminate the effect of rolled up interest on the amount of equity you have in your property in the future. Conversely, if property values fall, interest will erode the equity in the property much more quickly. Never forget that there is no guarantee that property values will rise in the future. If you live in your property for some time after the plan is taken out, or if property values fall, it is possible that you will have no equity in your home, and therefore nothing for your beneficiaries to inherit.
How Lifetime Mortgages Work
• You take out a loan against the value of your home.
• The lender gives you a lump sum or a monthly income
• You take out a loan against the value of your home
• The lender gives you a lump sum or a monthly income
• You don’t make any mortgage payments until the property is sold
• When you sell your home, you repay the amount you borrowed plus all the interest that has been rolled up over the years
Home Reversion Plans
With this Plan, you sell your home, or a part of it to a private company called a ‘reversion company’. You do not, however, receive the full market value as you would if you sold your home on the open market. Instead, the reversion company gives you the right to live in your home rent-free for the rest of your life.
Depending on factors such as your age and the value of your property, you may receive substantially less than the market value of your home and when your home is sold, the reversion company receives a pro-rata share of the proceeds of the sale. For example If you sold a 30% share of your home to the reversion company, it will receive 30% of the proceeds. These plans are only available if you are over 65.
How Home Reversion Plans Work
• You sell a share of your home to a reversion company
• You receive a lump sum or regular income
• You do not have to pay any rent to live in your own home, even though you no longer own all of it
• When your home is sold, the reversion company receives the agreed percentage of the sale price of your home
Drawdown Lifetime Mortgages
This is a special type of plan that is becoming increasingly popular due to its flexibility. Under this type of scheme a lender agrees that you can release up to a certain limit and take the money as and when you need it.
Monies are released either as regular monthly income or ad hoc cash withdrawals (or both). As the money is taken, the amounts drawn down are simply added to the amounts owing. The advantage of this type of plan is that you only pay interest on the amounts drawn down so the amount of interest that accrues would be less than if you took the entire lump sum immediately.
Remember with a lifetime mortgage you continue to own your home and you can still benefit fully from any subsequent rise in house prices.
To find out if you qualify and which plan is best you for.
Please contact us here or call us on 0870 1904187
These are lifetime mortgages so to understand the benefits and implications as for a personal illustration. The Financial Services Authority do not regulated all forms of equity release.