The need for a fixed source of income in your retirement period is very important. Many people plan for their retirement but sometimes, an extra source of income is needed in your retirement period. If you own your own property, equity release might be a solution for you. So the question becomes what is equity release?
Defining the Financial Product
Equity release is a way for you if you are above fifty-five years to withdraw equity from your property. You can release equity from your property on a monthly basis or you can choose to withdraw an immediate lump-sum amount. It does not matter if you choose for an immediate amount or if you choose for a monthly amount, the amount that you receive is free from taxes. It is non-taxable. However, if you use this money to earn income that income will automatically be taxable.
There are a number of options available if you are considering equity release. You can choose for a lifetime mortgage, an interest only lifetime mortgage, or a home reversion plan. The advantage of all of these plans is that you can obtain a loan against a property but you are not required to repay the loan until you die. So how exactly do you repay the loan after your death? Your property is sold and the initial amount and in some cases the accumulated interest amount are repaid.
The sum of the initial loan amount and the accumulated interest can never become more than the value of your property. When the property is sold, there will always be a balance after the equity release provider receives its payment. This amount goes to the children, grandchildren or other living relatives of the owner of the equity release scheme.
Delving into Interest Only
There are many providers of equity release schemes. You need to do sufficient research to make sure that you choose the right provider and the right plan. If you already have an existing source of income and can afford to make a monthly payment, you can choose for the interest only lifetime mortgage. You will only have to pay the interest amount every month. However, if you cannot afford a monthly payment, you can choose for a normal lifetime mortgage or a home reversion plan.
Lump Sum Options
There is more than one way to get a lump sum payment. You have the traditional equity release for retirees, home reversion and enhanced lifetime mortgage.
For the lump sum lifetime mortgage everything is the same as it is for the interest only version, except you do not make a monthly payment. In fact you can use this as a rollover type of mortgage in that the interest only option can be rolled over into a traditional lump sum lifetime mortgage if you run out of money to make interest payments.
Enhanced lifetime mortgage has probably got you asking what is equity release again. This is because it sounds much different, but in actuality it is a lump sum mortgage for special situations. It is an impaired lifetime mortgage where your poor health can get you some funds to live comfortably. The only difference is that you must have a health problem from cancer to obesity that releases a larger lump sum than the traditional option.
Home reversion as mentioned is not a mortgage at all. Instead, with home reversion you gain a lump sum based on the amount of home you sell out right. At least there is nothing to repay in the end and you have a near guarantee of inheritance. You also get to live rent free in your property until you decide to move out. For some this is better than a mortgage at the end.
Financial Advice is Necessary
The above has just been an introduction to equity release products on the market. You should not take this article and go out and get a mortgage. Instead, you will want to speak with an independent financial adviser and learn more about your options. The definition is simple, but there are plenty of clauses that can be used to help you make your lifetime mortgage or home reversion work better for you.
If you already asked what is equity release, then now is the time to find out what can you do to protect your family’s inheritance and how an independent adviser can help you make an education decision on the financial product. Remember to also speak with your family about your decision so they are not surprised after you are gone.