Should You Consider Equity Release To Pay For Live-in Care?

Published on: 21 January 2021 Last Updated on: 24 December 2024

Although it seems like equity release plans have been around forever, this sector of finance has only been regulated since 2004. However, this has not dented their popularity among over 55s wishing to free up a sum of money rather than leaving it tied up in their property.

Many have used the money to fund home DIY projects, help a child onto the housing ladder, or simply for a blowout holiday or new car. Increasingly though many are seeing equity release as a good way to pay for care in their own home in old age. Equity is the value of your home minus any loans or mortgages secured against it which haven’t been fully paid off.

If you’re wondering whether this would be right for you read our advice on the advantages and pitfalls of equity release and how the equity in your home could pay for a comfortable old age.

What is Equity Release and How Does it Work?

This is a method for releasing some of the untapped wealth tied up in your home. Being able to unlock the value of your home and turn this into cash is a way to remain in a much-loved family home. There are two main types of equity release – a lifetime mortgage or a home reversion plan, which is the sale of part or all of the property.

A lifetime mortgage is a loan against the value of your home which is not repaid until either the homeowner dies or goes into long-term care, or the property is sold. If you decide to go down this route you must choose carefully between the two types of lifetime mortgage which are:

The interest roll-up mortgage, which is the most popular option. With this, you receive either a lump sum or regular amounts, and interest is added to the loan at a fixed or capped rate.
An interest-paying mortgage is similar to a standard mortgage in that you pay monthly or ad-hoc payments, and some plans allow you to pay off the capital, to reduce the sum owed at the end.

The home reversion plan is only available to those aged at least 65. With this, you can sell all or a percentage of your home to a provider at below the market value and you become a rent-free tenant in your home. You can even sell percentages of the home at off-set intervals.

Another, less well known and potentially more risky option is the sale and rent back scheme where you sell your home, at a discount and become a rent-paying tenant in your home.

Points to Consider

Home care services are increasingly seen as preferable to standard nursing home care for many reasons, not least among them being able to carry on living in your own home being looked after by a trusted live-in carer who becomes your friend.

Lifetime mortgages are considered the most popular option for equity release because it allows you to retain full ownership of your property and some come with an option of paying back some of the loans over time in order to reduce the build-up of interest and retain as much of the value of your property to benefit your estate when you die.

You can only apply for equity release once you are over 55 and the amount you receive is dependent upon the value of your home (minimum value £70,000) as well as your age. Your property must be in the UK.

Benefits of Equity Release

For today’s older homeowners who have seen the value of their homes rise significantly over recent years and with the added benefit of current low-interest rates, equity release gives you an amount of cash to spend now or to put towards a live-in care plan.

Risks and Pitfalls of Equity Release

The biggest problem with equity release is that you do not receive the full market value for your home, indeed the amount you can access would be much less than you would get by selling your home on the open market in the traditional way. Another disadvantage is that any inheritance your beneficiaries expect to receive would be reduced.

The upfront costs and fees involved in setting up an equity release plan could be as much as £3000.

If you opt for a lifetime mortgage there is a real risk that when the time comes for your home to be sold the amount owed may be more than you borrowed because of the compound interest charged on the mortgage, unless you can pay off some of the debt as you go along. So, if you want to leave a decent inheritance for your family you need to act with caution.

Be aware that if you have a substantial amount of cash in the bank this could affect any means-tested benefits you may be entitled to. The upper threshold is currently £16,000 so above this you are ineligible for means-tested benefits. Your tax situation could be impacted.

If you choose to pay off the whole of the lifetime mortgage early you could incur penalties.

Risks of Home Reversion Scheme

You may only receive between 30-60% of the market value of your home and there may be a clause in your contract which forbids you from moving home. Distressingly, once you die the property usually has to be vacated within one month which causes unnecessary upset to the family at a distressing time.

Protections from the Equity Release Council

You should look for an equity release provider who is a member of the Equity Release Council to ensure that any lifetime mortgage you take out will never exceed the total value of your property. You are also assured that:

You can remain in your home until the end of the mortgage term
You are provided with an independent solicitor who explains everything clearly to you
Interest rates must be fixed or capped and the product must have a ‘no negative equity guarantee’.

Always get the best independent adviser who is regulated by the FCA and discuss things with your family before signing on the dotted line.

Read Also:

What To Leave Behind Once You Have Sold Your Home
The Guide to Understanding Your Home Value

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How Do You Avoid Negative Equity On Your Next Car Loan?

Car finance allows drivers to spread the cost of a new or used car into affordable monthly payments. By borrowing money from a lender, drivers can purchase a car and pay the lender back in monthly installments until the end of the agreed term. Negative equity is a term you may hear often with car finance, and for many drivers, it is best to avoid it. Find out how you can ensure you don’t end up with negative equity and what to do next if you find yourself in this situation. What Is Negative Equity? In car finance, negative equity is when you owe more on your loan than your car is worth. Negative equity can be known as outstanding car finance or an upside-down loan which means if you sold your car to clear the loan, you still wouldn’t have been able to pay the balance off. For example, if your settlement figure was £6,000 and your car was worth £4,000, you would still owe the finance company £2,000. Usually, negative equity happens when the value of your car drops quickly during your agreement. This is especially common with brand-new cars, as they can lose up to 50% of their value in the first few years of ownership. Here, if you want to trade in your car but have negative equity, you will need to repay the loan amount before you take a new loan to purchase a new vehicle. What Are The Reasons For Negative Equity? Basically, a negative equity situation happens for a variety of reasons. For instance, an upside-down situation in regard to a car loan can happen due to the following reasons: You might have a loan for a longer term. Apart from that, your vehicle has also gone through depreciation since your purchase. There is a no-money-down auto loan in your case, or you might have paid more than the sticker price of the vehicle due to the inclusion of add-ons. You might have purchased an expensive vehicle, which might not have the same value that you expected during the purchase. Your debt regarding the loan is of a high rate of interest. Hence, most of the money that you are paying is going to the interest as compared to the principal. Depreciation is also a major factor in this case. Basically, the term rate of depreciation shows how fast an asset loses its value. Generally, a car loses almost 20% of its value in the first year itself. Furthermore, the process of depreciation continues to happen in the following years until the car fully loses its value. Why Is Negative Equity Problematic? Negative equity within your car finance deal can be an issue because you will still owe the lender money even if you sell your car. In some cases, you may not be able to sell the car, too. If you find your circumstances have changed and you can’t afford to carry on with the loan, you may be charged additional fees for missed or late payments, and it can lead to much more serious financial consequences. How Do You Avoid Negative Equity In The First Place? Before you take out a car finance deal, consider these factors below to help prevent negative equity from occurring: Only Borrow What You Can Afford. If you’re in a position to buy a new car on finance, it’s important you use a car payment calculator first to see how your loan could look and make sure it is affordable. This may mean choosing a used car over a brand-new car, as older cars usually have already depreciated at their fastest rate in previous years. Put Down A Larger Deposit. A larger deposit contribution at the start of your finance agreement can help to reduce your loan amount. A smaller loan can help to reduce the risk of your car being worth less than how much you owe. Choose A Slower Depreciating Car. If you want to avoid negative equity, you could consider choosing a car that depreciates at a slower rate. Cars that hold their value will be less likely to leave you out of pocket at the end of your car finance deal. Make Higher Payments. Negative equity can often be associated with PCP deals as they offer low payments and a large balloon payment at the end of the deal. Opting for a deal such as a hire purchase, which aims to pay off the value of the car at the end of the deal and has higher monthly payments, can help avoid any outstanding finance. How Do You Get Out Of Negative Equity? There are different ways of getting out of negative equity. However, based on your current situation, you will need to choose which way works the best for you. Basically, you will need to choose the one that goes with your budget. Furthermore, it also depends on whether you want to keep the vehicle or not. Hence, to get out of negative equity, make sure you do the following: 1. Start By Paying Off The Loan The most obvious way to pay off your negative equity is to accelerate your payment. Here, the faster you pay your loan off, the sooner you will be able to deal with the debt. One of the best ways of paying off the loan is to pay extra on the principal part. Apart from that, you can also consider paying a lump-sum amount beforehand to avoid paying interest for a longer period. Hence, you must consider reviewing your budget and savings from time to time to pay off your existing debt. 2. Loan Refinancing Here, you might consider taking out a new loan to pay off your existing debt. This will help you in getting out of your upside-down car loan faster. This works even better if you can avail of a new loan with a lower rate of interest. 3. Selling The Vehicle If you do not need the vehicle, you can consider selling off the vehicle. This way, you can get a lump sum of cash, which will allow you to pay off the loan. Furthermore, if you sell the vehicle to a private buyer, you will have the option to negotiate the price further. This will enable you to get more cash, which will further help you to pay off the negative equity. 4. Surrendering The Vehicle If you handle the vehicle to the lender, you can get out of the negative equity, too. In addition to that, if you do a voluntary surrender, you will be more likely to get out of the negative equity. Summing Up: Getting Out Of Negative Equity If you’ve not been able to avoid negative equity and need to know how to get yourself out of it, follow the top tips below: If you can still afford your current car finance payments, it is recommended you stick with the deal you have at the moment. In many cases, your deal will balance out over the duration of the loan, and the negative equity should be settled by the time you reach the final payment. You could pay off your negative equity by paying the lender in cash. You can hand your car back to the lender through Voluntary Termination. If you’ve paid half of your agreement off, you could return the car to the lender. It’s always best to speak with your lender first, though, to see how they could help you. Do you have any more ideas to add? Consider sharing in the comment section below. Read More: Proven Strategies To Captivate Buyers And Sell Your Business Successfully Get On The Online Market With The Best Web Design Experts In Brisbane 8 Tips For Tech Industry CV Writing That Highlights Your Skills And Experience

Are Debt Consolidation Loans Recommended for Credit Card Consolidation

Debt consolidation has become a very common practice in the modern world. Financial advisers encourage people to take this approach especially if you want to become debt-free. Always go for a credit card loan during emergencies and look for means and ways of clearing it fast. Credit cards loans only assist you because you get them very fast. However, they come with more disadvantages the benefits to the borrower. At this point, consolidating all your credit card loans into one big but cheaper loan becomes a necessity. Importance of Debt Consolidation: Debt consolidation loan refers to taking out a personal loan that is equivalent to the sum you owe on your high-interest credit cards. After you use the loan to pay off the credit card, you must now pay back the lender that extend the loan to you. If you can find a personal loan with a low-interest rate, you will be saving money in repaying your credit card debt. Lower interest rate means that you can pay off your credit card debt and become debt-free faster. How Debt Consolidation Works: Many online personal loan lenders offer a loan amount of up to $35,000 to more than $100,000. The loan amount that you get approved will depend on whether you have the income to pay back. Once you are approved of the loan, they may send you a check or direct deposit the amount into your bank. You can then use the funds to pay back the credit card debt yourself. Some lenders can help you to submit the payment to your preferred credit card companies. In this case, you have to tell them what lenders to submit the payment and the amount to submit for each lender. Read More: Top 5 Types Of Startup Business Loans Other benefits of Debt Consolidation: Now that you can afford to pay back the loan, you must be diligent in making the repayment every month. In this way, your credit score will be build-up by the time you finish repaying the loan. You should check your credit report prior to applying for a personal loan use for the purpose of debt consolidation. The debt consolidation loan could also help to extend your loan term and reduce the monthly payment. Making a minimum payment on the loan means that you are only paying the interest rate. The actual amount you owe will remain the same in this case. This option is ideal for people who have limited income and need help in repaying the loan. The lender will review your credit profile and financial documents when deciding whether to approve the loan. It is easy to get a low-interest debt consolidation loan when you have a good/excellent credit score. In addition, you also must have a low outstanding debt to qualify for a low-interest rate. The length of repayment will also affect the interest rate. Longer repayment term causes you to pay a higher interest rate.A debt consolidation loan can consolidate your credit card debts into a single monthly payment. Before that, you have to remember different due dates from different credit cards to make sure you promptly submit the payment to the credit card company. It is easy to miss a payment when you have multiple due dates to remember. Now, you just have one repayment date to remember. This ensures that you will always remember to make the repayment on time. Read More: How To Get An Auto Loan At A Low-Interest Rate Conclusion: It’s a nice move to consolidate all your credit cards debts into a single but less expensive loan. You will have a peace of mind from the single installment and reduced interest rates. You will also rebuild your credit history as you continue repaying the loan as long as you make timely monthly installments. Read More: Best Home Buying Tips For First Time Buyers Oh, Crop! Killer E-Commerce Mistakes You Need To Conquer Questions To Ask When Working With A Web Developer

A Beginners Guide to Listed Investment Companies

Investing can be a daunting task for anyone, especially for those who are new to the game. With a plethora of options available, it can be challenging to know where to start and what investment vehicles to choose. One option that has gained popularity in recent years is listed investment companies (LICs). In this beginner's guide, we'll take a closer look at what LICs are and how they can be a valuable addition to your investment portfolio. What are LICs? LICs are publicly traded companies that invest in a diversified portfolio of assets, such as stocks, bonds, and real estate. They are similar to mutual funds, but instead of investing in the fund directly, you buy shares of the company that owns the assets. This allows you to gain exposure to a variety of investments through a single stock, making it an easy and convenient option for those who want a simple and diversified investment portfolio. Benefits of Investing in LICs Diversification: As mentioned earlier, LICs offer a diversified portfolio of assets, which helps to spread risk and minimize the impact of any single investment. Professional Management: LICs are managed by professional fund managers who have the expertise and experience to select and manage investments on your behalf. Liquidity: LICs are listed on stock exchanges, making it easy to buy and sell shares, and providing you with the flexibility to make changes to your portfolio as needed. Potential for Higher Returns: By investing in a diversified portfolio of assets, LICs have the potential to deliver higher returns than investing in individual stocks. Lower Costs: Compared to other investment vehicles, LICs often have lower fees and expenses, which can result in higher returns for investors. Risks of Investing in LICs Market Risk: As with any investment, LICs are subject to market risk, which means that the value of your investment can go up or down depending on market conditions. Credit Risk: LICs may invest in bonds, which are subject to credit risk. This means that if the issuer of the bond defaults on their debt, the value of your investment may decrease. Management Risk: The success of a LIC depends on the ability of the fund manager to make good investment decisions. If the fund manager fails to perform, the value of your investment may be negatively impacted. How to Invest in LICs Research: Before investing in a LIC, it's important to research the company and its portfolio of assets to ensure that it aligns with your investment goals and risk tolerance. Consider the Fund Manager's Track Record: Look at the fund manager's track record to see how they have performed in the past and whether they have a history of delivering good returns. Diversify Your Portfolio: As with any investment, it's important to diversify your portfolio to minimize risk. Consider investing in multiple LICs to achieve a well-rounded and diversified investment portfolio. Monitor Your Investments: Regularly monitor your investments and make changes as needed to ensure that your portfolio remains aligned with your investment goals. In conclusion, LICs can be a valuable addition to your investment portfolio, offering the benefits of diversification, professional management, liquidity, and the potential for higher returns. However, it's important to understand the risks involved and to do your research before investing. By following these tips, you can ensure that you make informed investment decisions and achieve your financial goals. Additional: 5 Reasons Why Bitcoins Are Considered Reliable Investments Top 5 Investment Decisions You Need To Make In Your Thirties 4 Key Concepts on Making Signage an Effective Strategic Investment What Investors Should Know about Investment in Gold and Silver Assets

Should You Consider Equity Release To Pay For Live-in Care?

What is Equity Release and How Does it Work?

Points to Consider

Benefits of Equity Release

Risks and Pitfalls of Equity Release

Risks of Home Reversion Scheme

Protections from the Equity Release Council

Why Would I Need A Business Credit Report?

Did You Know NOT ALL DEATH are Covered by Term Life Insurance?

Content Rally

Content Rally wrapped around an online publication where you can publish your own intellectuals. It is a publishing platform designed to make great stories by content creators. This is your era, your place to be online. So come forward share your views, thoughts and ideas via Content Rally.

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How Do You Avoid Negative Equity On Your Next Car Loan?

Are Debt Consolidation Loans Recommended for Credit Card Consolidation

A Beginners Guide to Listed Investment Companies

Should You Consider Equity Release To Pay For Live-in Care?

What is Equity Release and How Does it Work?

Points to Consider

Benefits of Equity Release

Risks and Pitfalls of Equity Release

Risks of Home Reversion Scheme

Protections from the Equity Release Council

Share this Article

Why Would I Need A Business Credit Report?

Did You Know NOT ALL DEATH are Covered by Term Life Insurance?

Content Rally wrapped around an online publication where you can publish your own intellectuals. It is a publishing platform designed to make great stories by content creators. This is your era, your place to be online. So come forward share your views, thoughts and ideas via Content Rally.

Leave a Reply

Popular

Follow Us

Recent

Related