Equity release is becoming one of the biggest and most popular trends within the UK financial sector. Recent research from the Council of Mortgage Lenders has revealed that the UK equity release mortgage market has generated over six billion pounds worth of lifetime mortgages in only the last few years. As more people begin to explore the possibilities offered by equity release, it has gained more publicity and legitimacy as a viable option for your financial portfolio. The modern equity release marketplace is filled with household names who are now acting as equity release lenders. However, even if you have an existing relationship with equity release lenders, it is still important to fully understand the concept of equity release and how it can fire up your financial portfolio.
How Equity Release Schemes Work
Equity release allows home owners over the age of fifty five to leverage the value of their home with a lifetime mortgage or other form of equity release loan. Unlike a conventional loan or mortgage which would require a monthly payment, equity release schemes accrue the interest and it is compounded onto the balance of the equity release loan each year. The payment for the balance of the loan only becomes due when the home owner moves into long term care or passes away. The property is then sold and the equity release lenders take the funds for the loan from the proceeds, with any remaining money being distributed to the beneficiaries of your estate.
Equity release lenders offer home owners the possibility for a lump sum payment, additional monthly income or both. This can create a great impact on your financial liquidity. Some people find that they are cash poor but may have a great deal of equity tied up in their home. Equity release allows them to gain access to these funds without having to sell their home and downsize.
The Equity Release Funds
Whether you opt for a cash lump sum or an additional income, the monies from equity release are tax free. You are not restricted in how you use these funds. Many people use their equity release funds to supplement their pension, improve their lifestyle, make a large purchase such as a holiday home or even plan their estate. There are other implications to consider with a large cash lump sum as it may affect your eligibility for means tested state benefits or assistance. However, there are many people who have used their equity release to assist their children or grandchildren to take their first step on the property ladder, without placing their own home at risk. Gifting money to your family while you are still alive can be a good form of inheritance planning which can help your family from paying an inheritance tax after you have passed away.
Restrictions of Equity Release
As with any financial product there are benefits and limitations. There may be certain restrictions imposed by the equity release lenders such as early release penalties, if you decide to pay back the equity release early. These restrictions will vary according to the specific equity release lenders. There may also be restrictions related to your actual property, as some lenders impose limitations on the amount of equity which can be released from leasehold properties.
The amount of release will be determined by the equity release lender’s criteria. Generally, the amount of release available will be affected by factors such as your age, your gender, the value of your home, the balance of any secured loans or mortgages against the home. Some equity release lenders will even consider your general health, offering enhanced deals and schemes for those with an impaired lifespan due to their having a terminal or serious medical condition. There are a number of equity release calculators available, which will collate the information you provide against qualification criteria to determine if you are eligible for equity release and how much would be available for you.
Equity release can be an excellent way to fire up your financial portfolio. There are numerous equity release lenders offering products which are optimised for all circumstances. It is worth taking a little time to research your options with a variety of equity release calculator tools. This will allow you the opportunity to explore the variety of options which are available for you. Becoming familiar with equity release can help you to improve your financial liquidity and may assist you to finance other investments. It can provide an excellent way to plan for your retirement and long term future, but it is important to be aware of the limitations of specific plans. If you are seriously considering equity release, it is advisable to consult with a professional equity release broker who is independent of the equity release lenders. They will provide impartial advice to ensure you obtain the best possible deal.