For many of our equity release clients, knowing the pros and cons of taking out an Equity Release Mortgage, or as it is sometimes called – lifetime mortgage is paramount. Whilst this article will not answer all the questions, especially when it come to your unique situation (you will have to talk to one of our advisers for that), I hope that it will give you some of the answers as you start doing your research.
If you have recently been faced with financial problems or a pension shortfall, and you are a home owner, you may consider an equity release plan to raise the much-needed funds. An equity release scheme lets you access the cash that’s tied up in your property by releasing it as a lump sum, or in smaller amounts. If you are aged over 55 and your property is worth at least £70,000, you may be eligible for this plan.
There are two types of equity release plans; lifetime mortgage and home reversion. The first plan lets you take out a secured loan on your main residence, while you retain full ownership of your home. You can choose to make repayments towards this mortgage or let the interest accumulate. The accrued interest is then repaid when you die or move into care.
With home reversion plan, you can sell part or all of your property to a home reversion provider in exchange for regular payments or a lump sum. This scheme gives you the right to continue living in your home rent free until you die. When the plan comes to an end, your home is sold and the sale proceeds are divided accordingly.
Some home owners may opt to downsize by selling their homes in order to release their funds, however, there are those who are emotionally attached to their property or are simply unable to move. If you find yourself in a difficult situation financially and you aren’t keen on moving to a smaller property, equity release will be your best option. This scheme allows you to unlock some of the wealth that you have accumulated through your home over the last few years. You are then free to spend the proceeds on anything you want – it is tax free, after all!
Here are some of the biggest reasons why home owners take out an equity release plan:
Improving the home or garden is one of the most common reasons for releasing equity. Making improvements to the property will increase its value in the long term so it’s highly beneficial for the home owner.
If you want to treat your loved ones to a luxury cruise or an exotic holiday, equity release can be used to fund this one-off expenditure.
Help your family
Many home owners decide to use the released funds towards paying for their children or grandchildren’s tuition fees. Whether your child needs some deposit for their first property, or even some cash for their wedding, an equity release plan will help you do just that and more.
Reduce inheritance tax
If you have assets that exceed £325,000, you could be liable for inheritance tax. With equity release, your inheritance liability can be reduced because of the fact that you’ll have a secured loan on your property. To fully benefit from this plan, you will need to either spend the released funds before you die or gift the proceeds to someone else.
Equity release is a good opportunity for retired home owners to enjoy their life, using the funds to treat themselves. Bear in mind that if you do release the equity from your property, it may adversely affect your means tested benefits or your future eligibility for receiving financial help with care home expenses. This is why it’s important to discuss all your options with one of our financial advisers who will help you make an informed decision.