Equity release is fast becoming a popular option for homeowners who want to raise cash without having to sell their property. While there are different types of equity release schemes, essentially they all release some of the equity tied up in the property and only repaying it only once the house is sold.
However, how do we determine whether now is the right time to apply for an equity release plan?
There are a number of factors that collectively make the picture clearer. However, it is by discussing all these issues with an experienced and independent financial adviser that an impartial decision from the adviser can help. The following are all factors that will need to be taken into account.
Primarily, there must be a financial need and the right criteria must be met in order to qualify. Therefore, the applicants must both be over 55 to start with. The older you are, the higher the potential release can be. Subsequently, an important decision to make from the outset is could we wait for a few years when a higher amount is available? This effectively will be answered by the urgency of the finance required.
Secondly, the property is another determinant as to whether qualification for an equity release mortgage is acceptable. The property itself should be of standard construction; however certain non-standard build-types are acceptable subject to valuer approval. This could be concrete block, or timber frame, albeit the properties should usually be of a recent build, Another condition equity release schemes demand is a minimum property valuation of £70,000 and if its a leasehold property there needs to be at least 75 years remaining.
Equity release schemes differ in their terms of lending and repayment, and each scheme has its own pros and cons. For instance, a lifetime mortgage equity release scheme on a roll-up basis allows you to borrow money either as a lump sum or in instalments. It is finally repaid, along with the compounded interest when the property is sold, without the need to make monthly repayments. However, this generally means that the amount to be repaid is quite vast and ends up devaluing the net equity remaining for the beneficiaries when it is sold.
A home reversion plan, on the other hand, entails selling a percentage of the property rights to the home reversion provider. The provider then recovers the same percentage at the end of the term and when the property is sold. This remaining percentage is a guarantee for the beneficiaries that they will definitely receive. Any growth in the value of the property is of course taken into consideration and the proportional amount is recovered. Home reversion plans, too, have their own advantages and disadvantages and their suitability depends upon individual circumstances such as a minimum age of 65.
There are other schemes such as home income plans which allow you to borrow money against the property and pay out a monthly annuity based on your circumstances. While the amount borrowed remains constant, the interest is deducted from the annuity payment, so the amount of annuity is essentially reduced. This type of equity release can therefore be suitable for those around 80 years of age and above.
Equity release schemes can suit a variety of people, as it allows you to borrow money either in the form of a lump sum or via instalments from a drawdown facility that can be created with some equity release schemes. So, for instance, a drawdown lifetime mortgage scheme could be useful for those who do not initially need a large capital amount, but may need top-ups to supplement their lifestyle in the future. This would be valuable for those who need a lump sum of cash for one-off expenditures such as home repair works, an extension, holidays and equally useful for those who need to supplement their monthly income, while continuing living in their own property.
To establish whether ‘equity release is right for me’ then call Compare Equity Release on 0800 028 3142, where our experienced team of equity release advisers are waiting to assist.Back