A favorable option with the retired professionals, equity release is said to hold high importance and significance in foreign countries. With the right plan of releasing equity for your home, you can enjoy double benefits contemplating to both obtaining a certain amount equating to the capital value of the house and retaining the use of your houses for as long as you wish to until your death.
Equity Release – Definition
Equity release in simple terms can refer to the concept of obtaining a specific amount at one go or receiving a regular stream of income equating to the value of your house. In addition, it also allows you to retain the use of your house. The main key of the scheme lies in the fact that you receive money for your houses as well as living in the house, as long as you wish to until your death. The scheme in general works best for retired professionals or elderly individuals, who do not wish or is unable to leave the estate in the name of their heirs. In the USA, equity release is offered in the name of reverse mortgage to people aged more than 62.
Types of Equity Release
In general, terms, a number of plans are available under the scheme of releasing equity for your houses. You can choose from the basic plans depending on your needs and interests that best fits the scheme. Here is a look at some of the usual plans that are offered to facilitate the concept of equity release:
Lifetime mortgage- the most popular type of plan, this scheme secures a loan made on the home of the borrower. This loan is re-paid to the borrower or the borrowing couple at death or any such issue of moving out of the house. This loan is paid by selling the house. The borrower gets to retain his house along with the cost of ownership.
Home reversion- this scheme refers to the selling of the entire of part of the house to a third party, usually a reversion company or an individual. The borrower in turn is paid a specific amount of money either through regular monthly installments or through a certain amount at one time. In addition, they also get to retain the use of their house for as long as they wish.
Home income plan- this plan refers to the concept of lifetime mortgage that makes use of the capital to offer an income through an annuity purchase. The lender often offers this annuity purchase.
Shared appreciation mortgage- this plan offers the idea of lending a capital sum to the borrower under the scheme of getting a share of the future increase in the property value. The borrower gets to retain the ownership and use of the house under this scheme too.
Interest only- this scheme refers to the idea of taking a mortgage and repaying the capital on the death on the borrower. However, the payments of interest are made during his stay in the property.
Equity Release – Advantages
A number of advantages are related to equity release that has owed to its popularity with time among the elderly and the retired. Here is a look at some of the advantages:
It at time can reduce the inheritance tax that is to be paid by your estate
It offers a certain amount of tax-free cash or a regular monthly income for the resting period of your life
The borrowers are free to refinance their mortgages at a lower cost in the event of fall of interest rates
The plan of No Negative Equity Guarantee (NNEG) secures the borrower in case the market is down.
Equity Release – Disadvantages
Any financial plan and scheme related to capital value always comes with some risk in the business. Here is a list of some risks that you must be aware of before opting for a scheme:
It might decrease the amount of inheritance for your family
It might reduce the amount that you can donate to a charity
Equity Release in United Kingdom
The market of equity release in UK is mostly driven by two plans related to the concept of releasing equity for your property. These two plans are:
Lifetime mortgage – this plan retains the use and ownership of a property on which the scheme of repayment is based. To help the owners with the right scheme, a number of companies have come up with a calculator calculating an estimated amount of equity.
Reversion plan – this scheme requires selling off either a part or the entire property in turn of regaining the ownership of the house for the rest years of life.
In UK, the market focusing on the schemes of equity release is entirely regulated and both the plans fall under the remit of the Financial Services Authority (FSA). Before the control of FSA regulation, lenders generally took to signing a SHIP, which refers to a voluntary code of conduct with a number of guarantees.
This control and regulation of equity release in the market of UK has instigated more and more homeowners opting for the same.
Jim Wright is a content writer on equity release schemes UK. He keeps good knowledge on the Equity release companies.