It’s no secret that taking out an equity release plan is one of the most significant steps you’ll ever take in your lifetime. After all, your home is your sanctuary, your haven of safety, and, for most, the most lucrative asset.
Moreover, as you get old each day, you need to start being more intentional with your money – that includes having a solid saving plan and maybe even an extra source of income. However, few people want to retire and then start looking for a part-time job to maintain their lifestyle.
That’s where financial tools like equity release come into play.
Be sure also to check out sovereignboss and see how much equity you can release with the equity release calculator.
Some scandals in the 1980s gave the whole equity release market a bad name, but with a meticulous plan provider, there is nothing to worry about.
Before you can even dive into why you should consider diving into equity release, you need to understand what it is and how it works.
Equity Release in A Nutshell
Equity release is a financial tool that allows you to release equity from your property, while still leaving there. Ideally, your service provider will give you about 60% of the value of your home in a lump sum payment, or through monthly instalments. Essentially, when you die or move into long term care, then the service provider will then sell the agreed on the property at market value and deduct the amount owed to them. Any extra monies from the sale proceeds go to your estate or your next of kin. Keep in mind that this capital will accrue interest.
In the market currently, there are two equity release options; the lifetime mortgage, and the home reversion plan. The lifetime mortgage plan is where you take out a mortgage on your property. You still retain ownership of the property and can even start making payments on the interest or capital. Following your death or move to long term care, the lender then possesses the property and sells it to pay off the money and loans accrued.
With a home reversion plan, however, you sell all or part of your property to the lender, but continue to live and maintain the property. When the scheme ends the lender will sell the property to recover their money and the interest accrued.
So Why Is Equity Release A Good Idea?
Here are some of the reasons why it’s a great plan:
#01. You Still Get To Keep Your Home
Most people are scared to take mortgages or engage lenders using their homes as collateral. That fear is entirely reasonable because honestly, no one would want to be homeless or to move from being a homeowner to paying rent. With equity release plans, you get money based on the value of your home, but you don’t have to move out. The scheme allows you to retain ownership of the house until you die or move into long term care. However, you do need to maintain the house and in some cases, even insure it. It ensures that it doesn’t depreciate.
#02. You Benefit from the Increase in Value of Your Estate
How do you enjoy this perk?
Well, if by the time you get to repay the loan the estate market value is way above the initial price, then after the plan provider collects their proceeds, any remaining amount will go to your estate or heirs.
#03. You Are Protected with the ‘No Negative Guarantee’
You will never owe more than the value of the property thanks to the ‘no negative guarantee scheme’ that protects your family from lenders who might charge them more than the initial estate value of your estate.
In addition to the above perks, you also get to have the flexibility to use the money as and when you like with a ‘drawdown’ facility (with this type of scheme you only pay interest on the cash you have taken, not the amount held in reserve).
In as much as equity release is an excellent financial option, it isn’t a decision that you should make lightly. Make sure you get the right advice today!