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Equity Release Schemes Can Generate Money Today

Posted by on March 12, 2010 · Leave a Comment 

The equity in your home is the market value less the loans and debts that you have already secured against it. An equity release allows you access to some of that equity in cash without having to sell it and/or move out of it. There are two basic types of equity release schemes that you can consider.

These two types of schemes are called lifetime mortgages and home reversion schemes. You must be a certain age to be able to take part in an equity release. The exact age requirement can vary with the company you use but it is usually over 55 years old, sometimes more.

With the home reversion plan, you sell either all or part of your home to a reversion company. They will generally pay you out in a lump sum. You can continue to live in the home either for no rent or for a nominal fee as long as you wish or until you pass on. How much you will receive depends on the percentage of the property being sold, its value and your current age.

There are a few different types of lifetime mortgage plans. In each case, however, you still own your home. You borrow money against the value of your home and continue to make your mortgage payments.

The first type of lifetime mortgage plan is called the Roll-up Plan. You can receive your loan in either a lump sum of cash or as a regular monthly payment. Interest is added to the loan but not paid until the home is actually sold either when you move out die.

Interest is accrued on both the loan and all interest accrued prior so if you take the money in a lump sum, it can add up fairly quickly. If the roll-up mortgage is a drawdown one, you take the money in smaller payments either according to a regular schedule or as they are needed. In this case, the amount of debt will grow more slowly.

Drawdown equity release mortgages are amongst the most popular as they can significantly reduce the rolled up interest that would otherwise be added to the loan. A minimum initial lump sum of between 10,000 and 25,000 is usually set by the equity release provider.

A second type of lifetime mortgage is called the interest-only mortgage. In this case, you take payment of a lump sum and pay the interest on that loan each month. You pay back the amount of the loan when the home is sold. The danger with this one is that, if the interest rate is variable, you might experience difficulties making the monthly payment if your income is fixed.

Home income plans pay off a lump sum which is then used for purchasing an annuity. This gives you a regular income, part of which is used to pay the interest rate each month. The rest can be used at your discretion. When your home is sold, the original loan is paid off. It is best to use this plan when you are older than just following retirement.

You have a lot you should consider before considering equity release. Make sure you understand all the factors. Getting professional advice can be a really smart move before you commit to something if you are not sure you understand.

An equity release allows home owners access to equity in cash without having to sell or move out of their homes. We’ve got the inside skinny on lifetime mortgage

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Best Refinancing | Loan Rates For Your Needs