Equity release can be a controversial subject among financial advisors. While most agree that if used correctly equity release can be useful for pensioners, critics feel that there are many risks associated with releasing the equity in your home. No matter your situation you want to protect your inheritance but still have funds to live on.
The first and foremost pitfall of equity release schemes is the huge debt that is accumulated due to the rollover interest. This means that your children’s inheritance is potentially at risk and the equity release loan can completely devalue your home.
Interest is not paid with most equity release schemes until you decide to move out of your home or die. At this time the compounded interest and principle loan amount of due. It can require a sale of your home, which might take away from your children’s inheritance. A home that is in the family for generations is not something to let go of lightly. If you do not care about your home as the inheritance you at least want to make certain there is some money left behind in the house.
There is, however, a way to protect your inheritance and still release some of the equity on your home. There are interest only equity release schemes that require lifetime monthly interest repayments, and the balance of equity on your home remains fixed.
This means that the owner pays monthly interest on the equity loan as long as they live. After they are gone, even if the loan amount is not repaid entirely, the initial equity on the home will remain untouched.
Interest only equity release schemes can be the ideal option for those who need to liquidate some of the equity on their property but also wish to keep their children’s inheritance intact. Loss of family inheritance is one of the big risks associated with equity release.
Equity release is an important decision that affects not just the home owner but their children and grandchildren as well. So it’s important to consider it carefully and thoroughly explore alternatives before going ahead with it.
There is also a second way to protect your inheritance for your children after you pass on. The second option is a home reversion scheme. It is not available with all equity release companies and it is not the most ideal solution to your current funding needs.
Home reversion works on the premise that you will sell a part of your home. You will give ownership to the equity release company. In turn they provide you with a rent free place to live with no interest and no mortgage due after you are gone. You also retain a portion of the home ownership if you wish. This part of the ownership is the guaranteed inheritance for your family members. The portion will be sold and what is left is given to your family. It will be slightly less than market value so the provider of home reversion can get their money back too.
The trouble with this protection of your inheritance is that you sell your home. You may have the lifetime tenancy agreement that covers all members mentioned in the home reversion and the tenancy agreement; however, you have still sold your home. For some this is not a huge deal because they would sell their home with the interest only option or sell it to move into a long term care location.
These are the two best ways to protect your inheritance for your children. Other equity release schemes cannot guarantee there will be anything left for your family after you are gone. Roll-up, enhanced, and drawdown options have compounding interest. It will accrue during your life adding to the balance until there may be nothing left after the sale of your home.
Information You Need:
• Interest only lifetime mortgages are offered to anyone 55 years or older, as are other lifetime mortgages.
• You do not pay interest with all lifetime schemes until the end except with the interest only option.
• Home reversion requires you to be 65 years of age. You also have to sell all or part of your home.
• Your life expectancy can offer a higher payout with lifetime mortgages than someone younger or more fit can obtain.
You know what is best for you and your situation. It is up to you to determine how you wish to protect your inheritance for your family. They should be in on the decision making process so they know what to expect after you need to move or when you die. You also want to speak with specialists to ensure you have the right mortgage plan to release equity.