Equity Release Advice York
What is Equity Release?
“Equity Release” is the name given to specialist mortgage schemes that allow borrowers to utilise the equity they have built up in their property. Typically aimed at older borrowers (i.e. aged 55 or above), they differ from traditional mortgages in so far as there is usually no requirement to make a monthly repayment. That said, with recent developments in the schemes available, a number of options have been introduced which allow some flexibility to, for example, pay monthly interest payments or lump sum payments as appropriate. There are basically two types of arrangement which fall under the “Equity Release” banner:
- Lifetime Mortgages
- Home Reversion Plans
Lifetime Mortgage Plans allow you to raise capital secured against the value of your property usually at a fixed rate of interest. The plans can be on a “roll up” basis where no monthly payments would be required, or an “interest only” basis where the borrower can elect to pay the interest – typically each month. The capital balance (plus any rolled-up interest if appropriate) is typically paid off either upon the sale of the property (if, for example, the homeowner needs to make long term care arrangements) or upon the demise of the owner.
In addition to the basic principles above, there are different types of plan available which may be suitable according to your specific circumstances and needs, for example:
- Home Income plans which allow you to release funds to invest in an annuity to provide a regular income
- Draw Down Schemes which allow the provision for further funds to be taken in the future
- Enhanced schemes which allow those in poor health to potentially release larger sums
The key point on any of these types of Lifetime Mortgages is that the borrowers retain complete ownership of the property and have the right to continue living there for the rest of their lives or until they decide to sell.
Home Reversion Plans
A Home Reversion Plan involves you selling the property to a company in exchange for a tax free lump sum or a regular income. The company then provides you with a lifetime lease meaning you would be able to remain living in the property for the rest of your life. There would be no rent or interest to pay but you should be aware that the companies would only pay you an amount likely to be significantly below the open market value of the property. This would typically fall somewhere between 20% – 60% of that open market value depending upon your age and state of health. Upon your death, the company will sell the property and they would receive its’ full value, so there would be nothing left to pass on to family or other beneficiaries. However, in order to protect some of the inheritance value, it is possible to sell only a share of the property value. When the property is ultimately sold, the company will be entitled to that share of the final sale value, but any excess would then pass to your estate.
There are clearly advantages and disadvantages to the above schemes. Amongst others, some of the advantages could be that you don’t have to move house; you can fund improvements or alterations; you can receive a tax free lump sum; you don’t have to worry monthly repayments; there may be some inheritance tax benefits:
However, the disadvantages could include the fact that your ability to pass on an inheritance is affected; there may be fees involved in setting up a scheme; there may be an impact on your entitlement to any state benefits.
At Yorkmoneyman, we’ve a history of providing you with bespoke, detailed, local mortgage advice as to what may be the most suitable way forward in your particular circumstances. To add to this local service, we’ve now teamed up with an Equity Release Specialist and between us we’d be happy to come to meet you in the comfort of your own home to answer any questions you may have on anything mentioned above by way of a free consultation.
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