Do you find that it is becoming increasingly difficult to make ends meet? Do you currently own a property or are you still paying a mortgage? If you have answered yes to these two questions, you might be interested to learn what a concept known as equity release can offer. This can be a valuable way to free up financial liquidity that may have been otherwise untouchable. Let us take a look at how a typical equity release scheme functions as well as some of the potential benefits that you can enjoy.
What is an Equity Release Programme?
If you are over the age of 55, this could very well be a viable option. The main principle behind an equity release package is that it will provide you with the ability to access the worth of your property. This can be offered as a lump sum or in the form of monthly instalments (depending upon your circumstances). There are two main types of equity release:
- Lifetime mortgages
- Home reversions
In the case of a lifetime mortgage, you will take out a mortgage on an existing property (providing that you are the owner). These funds will reflect the value of the property in question. However, you still retain sole ownership. It is also to allocate some of this value so that it can be used as a form of inheritance in the future. The loan needs to be paid back upon your death or when you enter into a long-term care facility.
Home reversion schemes are another option. The main difference here is that you will essentially sell a portion of the value of your property to a lender. You can still remain in the property, however you will be obliged to maintain it in good condition. Once again, this plan is valid until you die and you can live within your home without paying any form of rent. Upon your death, the property will be sold and the proceeds will be distributed according to the percentage ownership that any beneficiaries have retained.
Things to Keep in Mind and Advice
Either one of these options represents a long-term financial commitment, so you always need to consult with a lender or a mortgage specialist well in advance. Also, the percentage that you can retain in regards to a home reversion scheme will fluctuate between different providers, so choose carefully. If you do indeed choose a lump sum, recall that this settlement will be subject to taxation as determined by the HMRC. On a final note, these actions are generally only taken by those who have no other means of securing financial liquidity. They should NEVER be used as a means to purchase a new vehicle or another property, as you can quickly find yourself in substantial debt.
Equity release can be a valuable tool at your disposal. By understanding its mechanics, you can be assured that the right decision will be made at the most relevant time.
