Description of equity release & the way it works?
This article will attept to clarify 'what is equity release'
We will discuss what equity release can be used for and why it can be such a lifeline for people in retirement
Equity release is a secured loan on your main residence & helps the over 55's to release tax free cash that has built up in the home over the years.
A description of 'equity' is the net assets of your property, equating to its value, less any loans or mortgages secured on it. The term equity described here is the cash available to support your cash flow & expenditures in retirement. This cash released can be spent on any purposes the borrower requires with no restrictions placed on how it is spent by the lender.
However, the most popular purpose of equity release is for debt consolidation reasons. This could be the repayment of your mortgage or any loans, credit cards or HP agreements taken out over recent years.
The effect of settling these debts is that outgoings are reduced & disposable income is increased, thus providing extra cash to spend.
Other reasons for relasing equity could be a new car, home improvements, holidays or generally making your lifestyle more comfortable.
From my 10 years of experience in the equity release industry I have found the uses for the tax free lump sum to be limitless, but for many; life changing!
How does equity release work in practice?
These schemes provide you with a tax free lump sum or an income which can be used to help you financially in retirement. The plan has NO fixed term & will therefore run for the rest of your own, or your partner’s life.
The lender will place a first legal charge on the residence so that when the property is finally sold they receive their payment first. Any money left over is then passed onto your beneficiaries as detailed in your Will if you have made one.
As you can see, equity release is in effect is a mortgage but with no monthly repayments. With no repayments required, equity release schemes have NO resulting effect on one's outgoings when affordability can be a key issue.
There are two types of equity release schemes; lifetime mortgages & home reversion plans: -
A lifetime mortgage is the more common plan available. In essence these schemes are a form of retirement mortgage, but with interest added to the capital annually. The amount to be repaid at the end of the day is dependent on how long the scheme runs for & the final sale value of the property
The Home Reversion scheme works by the homeowner selling a percentage of the property. The home reversion company will then retain a part or full ownership of the property . The reversion company then retains this percentage when the house is eventually sold. This results in a guaranteed inheritance for the beneficiaries.
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ABOUT THE AUTHOR
Mark Gregory is the founder & director of Equity Release Supermarket who have been accredited 'Best Financial Advisers' at the Equity Release Awards 2008.
Mark aims to pass on his experience in assisting the over 55's decide which method of releasing equity is the right choice for them.
Information can be found on equity release & all you need to know about equity release schemes by checking out our market leading website at http://www.equityreleasesupermarket.co.uk/