What is equity release and how does it work in 2020?

WThere are times when due to urgent dire of consequences we have to meet some uncertain expenses. This type of situation can come up with anyone. If you are stuck in one such situation where you need to meet some urgent expenses, then withdrawing from the equity is one great option these days.

But this option is not eligible for everyone. I will explain to you how it works as talk in detail about equity release.

With the improvement in life expectancy and the number of changes in the lifestyle, many senior citizens are going ahead with equity release plans UK. It is believed that it is being chosen as a preferred option to meet the insufficient savings and also to maintain a higher standard of living.

Equity release schemes enable retired homeowners to tap into the value of their property without selling it and moving out. It is important to take advice from an expert both financially and legally before going ahead with this option. It is important to understand the benefits and all the implications of equity release. These schemes are specifically designed and are targeted at older homeowners who are struggling to take on a regular mortgage and probably have little or no income to make regular repayments. 

Today, I will explain what equity release is and how it can help you in 2020. Keep reading to understand the in-depth details and understand the benefits of the same.

Equity release comes in two forms; one is lifetime mortgages and second is home reversion plans. The lifetime mortgage is the most common type of equity release and when you avail this you are not required to make monthly repayments. It can be repaid only through the sale of your property when you die or when you plan to move into long term life care. The most popular lifetime mortgage is the “drawdown” option, which is designed for those who don’t need a large cash lump sum. Instead, you can set some portion of your money aside for you to draw from, as and when you need it.

Eligibility Criteria:

To be eligible for a lifetime mortgage, one needs to be above the age of 55. This simply means you cannot avail of it when you are young. The money you withdraw can be spent wherever you like.

Typically, people utilize it for repaying debts, education loans, home improvements, and to maintain personal lifestyle. One of the main drawbacks of equity release is that it will reduce the worth/value of your property and there are numerous ways to minimize this by opting for various features the plan offers.

If you are thinking of taking a break and retire from your existing job and you need to meet the requirements of funds while at the same time maintaining the lifestyle then you can consider this option.

This is where equity release can help.

Benefits

–       Financial independence
Once you can release the equity from your property, you can spend the money wherever you like. No one will ever ask you where you have spent it. Whether you want to travel the world or spend it on a relaxing holiday you can simply spend it where you want or you can even utilize it for the education of your children. Your money would be tax-free and you can either take it as a lump sum in a single go or as a regular income every month allowing you to have more flexibility.

–       No negative equity guarantee

You will be surprised to know that the equity release schemes we typically recommend come with no negative equity guarantees.
This means when your plan is being repaid and during that time the worth of your house is less than the amount you owe then your loved ones won’t have to repay the difference in amount to the lender and hence they won’t be forced to leave the house.

–       Flexibility

Equity release interest rates plans are highly popular and flexible. They have become one of the most popular choices due to their flexibility. For example, if you choose to take out a lifetime mortgage, how you want to use your money is your choice. You can release the money either monthly or in a lump sum. In addition to this, the amount of interest accrued can also be reduced in the long term by releasing less equity, or by releasing it less frequently.

–       Downsizing is not required

With equity release at hand, you don’t have to worry too much and don’t have to take a toll on your health. You don’t have to face the cost of moving out of your family home to a smaller property. You not only have financial freedom but you have the choice to stay in your property indefinitely till you are alive.

However, with pros, the lifetime mortgage rates UK offer there are some cons as well. It allows borrowing money at a fixed rate of interest. Since many individuals choose not to make any interest repayments over the life of their plan, this means that the interest gets added up’ and is added to the final repayment when the plan gets over.

As the term gets longer, the number of interest increases that will have to be repaid.

Solution: You can keep the interest to be minimum by either withdrawing equity in smaller amounts or by making regular repayments.

–       Early repayments
Lifetime mortgages plans can potentially have hefty early repayment charges if you plan to repay it early.  

–       Reduced value of property
Equity release under 55
reduces the worth of your property. This means a reduced inheritance for your loved ones.

Home reversion schemes

Home reversion plans UK, allow you to sell all, or part, of your home to a company in return for a lump sum, or regular income, It maintains your right to live in the house. When the property is sold, you or your estate only receive a percentage of the property’s value that you still own.


How much can be borrowed?

It depends on several factors including the value of your property and how old you are. If there are two people jointly taking out the plan, it will be based on the age of the younger ones.

On a reversion plan, you can sell up to 100% of your interest in the property/


FINANCIAL SERVICE AUTHORITY

Lifetime mortgages and home reversion plans UK are regulated by the UK regulator the Financial Services Authority.

Important things to considerBefore you plan to go ahead with equity release, you should think about other alternatives as well. Start considering, if you have claimed all the state benefits which you are eligible for your savings.

If you take out an equity release plan, it will reduce the value of your property, so it would be good to talk to them about it before implementing it.

To fully understand how Equity release works, you should speak to the experts in detail and get a personalized solution. It is important to ensure the scheme you avail from the provider is an authorized one. If you are curious to know more about the amount you can get released from your property. Then you can use an Equity release calculator which will give you the information in detail. One of the renowned firms offering advice is Equity release calculator UK. You can contact them on 07368 432 992 and speak to their experts for detailed information to discuss your needs. 

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