Tag: Equity Release
Should You Consider Equity Release To Pay For Live-in Care?
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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The Need for Equity Release Consultants to Understand the Details
Equity release allows you to borrow money now that you don’t need to pay back any time soon. When you die, it is the time when the equity release provider will take the money back. They will sell the property and deduct the loan from the property value when sold. You don't need to opt for regular loans when there is an option that lets you borrow money without the need to pay immediately. The only downside is you could end up losing the entire value of the property depending on the amount you borrow, the rate of interest, and your time of death. It might look simple on the surface, but if you dive into the details, you will realise that things can be quite complicated. Therefore, you need help from equity release experts to explain to you all the issues that you don’t quite understand. They have years of experience: These consultants have been around for several years and worked with people who also wanted to get equity release. They have connections with various equity release companies, so they understand the terms and conditions they set. You can count on them to tell you what you need to know regarding equity release, including updates if there are changes in the policies. Even the legal terms that you find confusing will also be understandable after their explanation. They can simplify things for you: It is quite tricky understanding all the various concepts when they are all unfamiliar to you. It is even more complicated at your age since you are no longer as sharp as you used to be. With the help of these experts, they can simplify the concepts for you. They will show you some numbers, but they will also explain to you what they mean. After talking to them, you will feel enlightened regarding equity release and might even decide to go ahead with it. They can explain to your children too: Even if you already understand the equity release schemes, your children might worry that it is not the best choice for you. They might think that you are not getting a good deal out of equity release. You can let them speak with the consultants too, so they will know the details and not worry about what will happen next. After you die, your children will be the ones to deal with the equity release company. You want them to understand the details so that they know what to do, and they can stick with the terms agreed. Apart from paying the equity release advisers, you have nothing else to pay at the time when you get equity release. The payment will come later once the property is up for sale. Some companies might even penalise you if you decide to repay before they sell the property. As long as you stick with quality consultants who know the details of equity release, it will be fine. Find someone you can trust and who has a good reputation in the industry. Read Also: 6 Tips For Selling Your Brisbane Property Essential FAQs Before Buying A Villa
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