Many people have homes with low (or no) mortgages yet don’t want to move to somewhere less valuable in order to release that cash.
If you have value in your home an equity release plan or home equity reversion plan can be used to either obtain a lump sum or a a regular monthly income. They are generally only available to those 55 years and over who own their home or owe only a relatively small amount on it. Here is out short guide to equity release plans.
Equity release plans have been around since the 1980’s when they were a far cry from the well regulate dproduct they are today: It’s still a big decision, but with many fewer pitfalls than before.
For the older generation and their children, using the family home to release money can be a highly charged and emotional issue. An applicant’s children are usually apprehensive; not just worried about what their parents are doing but in many cases, cautious about what is happening to their inheritance!
In return for you giving the equity release plan provider a certain percentage of the value of your home, in return, the plan provider will give you a lump sum of money. You will continue to live in your home until you (or your spouse, whoever survives longest) die or have to move into a long term care home. At this time your home will be sold. The equity release provider gets the percentage of the home’s value that you agreed and you get the rest.
The two main factors considered for an equity release plan are your age and the percentage of equity required from the property.
In general terms the lowest age to qualify is 55 years. This is then combined with the percentage of equity required from the property. In most cases the younger the applicant the lower the percentage of equity required.
Equity release plans are designed to assist applicants who are in retirement, or about to retire. Each applicant is very different. The main reason people consider this option is because they wish to stay in their home but need to raise funds from the equity. The need to raise funds could be due to a number of difference circumstances, such as needing to clear unsecured debts, replace an existing mortgage, as an income to replace an inadequate or delayed pension or to assist family members. More recently we’ve seen equity release plans being used to fund adaptations to the home for health and mobility needs.
There are a range of equity release plans to suit your budget and needs. You can explore multiple plans where no payment is required per month at all. If you want to protect your legacy then explore interest only products. Draw down products are the perfect plan if you need to raise funds on several occasions.
Plans with a no negative equity guarantee
A number of equity release plans are now designed so that if the value of your property drops below the amount owed, after any ultimate sale, no additional payments will be requested from the estate.
Dos and Don’ts
- Do consider your family, allow them help you through the decision process
- Do think about informing family, if they’re not part of your decision process, that you are taking action that may impact on their future ‘legacy’
- Do ensure your plan is designed not just for now, but for all options in the future
- Do consider your other options, such as downsizing, borrowing from family and friends or using existing savings.
- Do check if you are entitled to any unclaimed benefits
- Do research home improvement grants
- Don’t automatically go for the cheapest interest rate – take steps to read the small print and find out what early redemption charges there are, if the draw down policy is better, can the product be transferred to another property if you decide to move?
- Do find out if the plan offered is regulated and approved by the trade body Safe Home Income Plans (SHIP) or the Financial Services Authority (FSA)
- Do seek specialist advice and ensure your solicitor has equity release experience
- Do ask if the advice your are being given is tied to a certain provider, or if are you being offered a cross section of products from a variety of lenders
- Don’t over borrow. Not only will this more than likely cost you excessive amounts of money in interest but you should also bear in mind that holding a deposit of funds from an equity release may result in some mean- tested benefits being effected
- Do ensure if you live with a partner who is not on the house deeds, that any policy ensures you both are able to live there for life
We hope you have found our equity release guide useful. If you want some help with your debts, speak to us today on 0800 019 2095 or complete our contact form and we’ll call you back.