An equity release scheme is a scheme that allows you to release tax free cash in whatever way you would like, normally without you having to make any monthly repayments. To sum it up, you get the loan as cash, normally in monthly payments, and can carry on living in the home you love. The best equity release schemes are especially popular with older generations – often your home has increased in value astronomically since you bought it and this gives you more collateral to increase your income with.
So which one is the best equity release scheme for you? Well, that depends on a number of factors. The best equity release schemes for your neighbour might not be suited to you – everyone is different and with different personalities and situations comes different needs. There are some key factors that could help you decide which actually the best equity release scheme is for you.
A specific equity release scheme could appeal to you because it has the lowest possible interest rate – if you would like to keep sundry expenses down in the long run, this could definitely be you. Maybe your other retirement plans have not panned out for whatever reason and you need to get as much cash flow going as possible – then you should look at equity release schemes which do a maximum release.
If you like being in control or are not quite sure where the future is headed, the best equity release scheme could be one that has the most flexible plan – you can change your monthly cash payments and either shorten or extend the period of release if need be at a later stage. Finally, the best equity release scheme could depend on whether it you need a roll up or interest only release scheme. Which one you need will depend on your immediate needs and what those who will inherit from you expect.
Getting into Specifics about Equity Plans
As you now understand there are a variety of options you can use to gain money for your retirement, but which is going to be the best scheme for you? Let’s take a look at some specific details about lifetime mortgages and home reversion plans.
An interest only lifetime mortgage requires that you make payments, but it is an option you can take out if you are 55 years of age and your home qualifies for the minimum value that providers ask for. In this mortgage you make a monthly interest payment keeping the balance the same until you move out and pay it off or die. The home may be sold to cover the loan depending on your finances at time of death. Given that you pay off the interest amount there is a possibility of leaving an inheritance behind. It depends on the amount of the principle balance of course. A larger lump sum payment to you could mean trouble if the value in your home drops.
You are not subject to negative equity situations with lifetime mortgages; however, it could eat away at your beneficiaries’ inheritance. Drawdown mortgages allow you to take out just what you need when you need it. The interest only accrues on the amount you use instead of what is available. It is another way you may be able to leave an inheritance, but again home valuation is the determining factor for all of these lifetime mortgages.
Should you have an illness or disorder that shortens your lifespan, the enhanced equity release scheme could be the best one out there for you. You obtain a larger lump sum, quicker, and it is often paid back when you die earlier than the average retiree.
Home reversion is the last product to discuss. It requires you to be 65 years of age before you can enter into an agreement. You also sell your home to a provider. You sell a part or the entire home. For this you will see a lifetime tenancy agreement that allows you to remain rent free. As options go this is the best if you wish to leave no debt behind. It is not as great if you want your family home to stay in the family.
When choosing the best equity release schemes for you, it is important to go and discus it with your financial planner – he or she will have a deep and objective understanding of your needs and which equity release scheme really is best for you.