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Wednesday, 16 November 2016

Equity Release: Will it release your stress?


I know what just happened. You read the title; it spurred confusions and queries that very second. It’s great in a way because this curiosity might help you fetch out some important insights and preferably profitable options.

When there’s a mortgage left to pay, or you need some money assistance in your happy days of retirement; Equity release can fetch you these benefits. Wait, I didn’t say it “Will”. That’s because there’s no guarantee that Equity release will suit best for your situation. In fact, you might even regret your decision! So, isn’t it better to get all the facts, analyze and then take the best decision? See, I don’t want you to miss on some opportunity that might prove gold for you.

After all, we stand different from each other and so does our situations; how can this scheme then serve a monotonous benefit to all? To your best convenience, some FAQs will be answered in this blog.

– What exactly does Equity Release mean?
Equity = Assets – Liabilities
Suppose you have a car that values $12000 and have a $5000 loan against it. So, your equity is $7000.
Now, when you get a loan over this $7000 for regular cash income or a lump-sum amount for comfortable future; it’s Equity Release. (You’ll still continue to own that car until your die.)
DEFINITION: It’s a way to retain the use of your asset (say, your house) while loaning cash out against its value. The lender does get the repayment after you die.

It means you keep owning that place and will also have to continue staying there.

– Are there any Branches of Equity Release?
Oh yes! There are majorly 2 types of arrangements:
Lifetime Mortgage: A mortgage loan will be taken against your (borrower’s) asset (house). The Capital gets add up to the compound Interest regularly. The wholesome amount will be repaid to the lender when you die or move out to a long term care. Till then, you hold full ownership of that asset.
Home Reversion: When, as an owner of the property, you sell it (or a part of it) to a reversion company, you receive a regular income or a big amount in exchange. The property belongs to the money lender now; but you, the previous owner, doesn’t need to vacate the property. You can continue to live in that property rent-free till you die or move out.

– So, is there a limit to the amount that can be borrowed?
That depends on some factors:
-Value: The Lender will first contact a professional to get the exact valuation of your property. Based on this research, the amount that can be borrowed by you will be decided.
-Age: A major aspect that affects the decision of how much money you can borrow is your age. If you’ve filed for a joint application, your partner’s age will also be considered along with your age.
-Health: If you’ve some medical history or certain present medical condition, you may receive a larger amount from your lender.

-What minimum age is required to be eligible?
It differs for both the branches of Equity Release:
-For Lifetime Mortgage: To be eligible for this, you need to be at least 55 years old. -For Home Reversion: Your minimum age should be 60 years for being eligible.
If you and your partner file the joint application, then the younger one needs to be of the eligible age.

-What if the value of property falls later, to the extent that it’s unable to repay the loan?
Well, in certain rare cases, this might be a possibility that your property’s value lowers drastically and after your death, your old property is not able to pay off the loan. Your heirs will be then be paying off your remaining loan.

-I don’t want to drag my heirs into this. Isn’t there any other way?
That’s the reason why it’s advised to opt for “No Negative Equity Guarantee”. With this, you will be assured of no debt to be paid off by your heirs. According to this, even if after selling out your property the loan isn’t paid totally, the remaining amount is written off.

These are some major questions that generally dwell up in the minds which desire to opt for an equity release. This proves to be a good option if your circumstance stands as a support. But to finalize this major decision, it’s recommended to consult a financial advisor who will specifically analyze your situation and recommend the best possible option for you.

Let’s talk about the Flexible Mortgage!


Flexibility is the key to stability. That’s why it’s necessary for this type of mortgages to jump in the list. So basically, we are going to talk about the Lifetime mortgage. Yes, it’s suitable to have the name- “Flexible Mortgage”
Well, that’s what we’re going to talk about in this article. The pensioners pile up major stress regarding drastic fall in their regular income. They fear the absence of financial stability in their future years. But, what if this financial instability is cut down by the financial flexibility? Sweet!
So, the knife of financial stability is particularly termed as Lifetime Mortgage.
  • What is it?
Lifetime mortgage. It’s a long-term loan that’s secured against the borrower’s property and is repaid when he/she dies or moves to the long-term care. During the loan term, the borrower continues to stay in that property and maintains it-
  • How does it Work?
When you are at least 55 years old, you need some kind of financial stability to take care of your monthly expenses and other essentials. What you can do is… you can take out a loan against your home where you live. You’ll be using the money for whatever you need. You’ll still continue to live there and retain your ownership until you die or move to a long term care. That’s when this loan will be repaid.
After you die or move to a long term care, the property against which you took the loan will be sold. The amount fetched out will be used to repay the loan amount to the lender. The remaining amount will be passed on to your heirs.
  • Flexibility is divided into further flexible branches!
Drawdown Plans At this age, regular income is what you’ll crave. But without a job, would that be possible? Yes! With the Drawdown Lifetime Mortgage, you can plan the loan amount into regular incomes for yourself.
So, you’ll still be complimenting your regular expenditure with stable income support. The advantage? The interest will be charged on only the amount you take out for your necessities. So, basically your interest is not going to roll-up and that’s a stress revealing thought!
Enhanced Plans This is a kind of generous flexibility. It is preferably based on the borrower’s health and lifestyle. Any impairment or serious health issue of the borrower can result in lower life expectancy. This influences the lender to provide larger amount than normal mortgage deals.
Protected Plans You took the Lifetime Mortgage against your home. Now, when you’ll die, nothing will be left for your family. But you don’t want that, right? So, opt for protected lifetime mortgage plan.
According to this, you’re free to fix up some part or furniture of your home which will be excluded for the mortgage deal; that you can save up as inheritance for your family. It cannot be used to repay the mortgage loan.
Interest Payment Plans Interest payment mortgage plan is a way to periodically reduce the mortgage debt. If you wish to repay the monthly interest charged against your loan, you need to opt for this plan.
It will prevent the interest roll up. Reducing the compound interest, the final amount to be repaid at the end of the mortgage term will remain equal to the amount borrowed. This is an appreciable option for those mortgage borrowers who have reasonably good retirement income.
  • Flexibility Comes with a Price
Being flexible is an advantage but for benefiting yourself with this financial boon, you need to pay some costs. It’s highly necessary that you are perfectly aware about that. So, the costs that’ll be involved in taking up this Lifetime mortgage deal are:
Arrangement Fee: You will have to pay this to the lender while arranging the preferred lifetime mortgage deal.
Legal Fee: When the lifetime mortgage plan is finalized, you will be required to pay some legal and valuation fee.
Advisor Fee: This kind of decisions need through discussions and advice from a learned financial advisor. So, you need to pay the fee for a wise advice.
  • Some facts you don’t want to know but you should know!
Well, it needs courage to except the cons of something that shines out as an amazing option. But, like a quarter, everything has two sides. And it will be foolish to stay unaware about these not-so-welcoming facts.
Curbed State Benefits: The benefits offered by the government like the council tax benefits and pension credits can be affected by this mortgage deal.
Reduced Inheritance: The rolled-up compound interest can blow up the amount of mortgage to be repaid resulting in highly reduced inheritance for your family.
Early Repayment: If you’re able to and wish to repay the whole amount prior to the mortgage term decided, you will have to pay an early repayment charge too.
Equity Release is not highest: The Lifetime Mortgage Plan cannot offer as much as the Home reversion Plan.

Do contact your financial advisor. Explain your personal situation with every detail, discuss the pros and cons in much more detail, ask out all the questions jumping inside and get a customized perfect solution for yourself.

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