There are many types of equity release schemes that offer those who are 55 years of age and older the option to borrow on the equity in their home. The older the home owner, the less risk there is. While some equity release lenders offer this option to those who are as young as 55, many only offer it to those who are age 65 and above. Here we’ll look at the types of equity release in order to try and determine whether it suits everyone.
Lifetime Roll Up Mortgages
The lifetime roll up mortgage scheme allows those who are 55+ to release some of the equity in their property without paying it back until the home is sold and the loan and interest is paid off. The difference between the loan and the selling price is paid to the homeowner if he or she is still living, or the survivors of the estate. The disadvantages involve age. A homeowner who is as young as 55 or even 60 will find that there is less equity left in the home after the loan and interest is repaid. The interest rate could increase significantly between the time the equity is released and the time the home is sold. Be sure to ask about the interest rate when researching an equity release company.
Home Income Mortgage
Those who choose the home income mortgage take out a lifetime mortgage on a percentage of the value of the home. The homeowner continues to live in the home receiving monthly annuity payments or, if a lender allows, they may take a lump sum and monthly payments. The downfall is that the interest is deducted from the annuity payments meaning a lower income. The younger the homeowner, the more costly it is. There may be very little value in the home when the contract is fulfilled, meaning the survivors will receive a smaller inheritance, plus, once a contract is signed the homeowner is committed during its duration.
Home Reversion Plan
The home reversion plan allows homeowners to sell all or part of their property. The homeowner continues to live there and receives either monthly payments or a lump sum. A major disadvantage to the home reversion plan is that the homeowner will lose the title to the home. They also continue to be responsible for its upkeep. While the price is set at the signing of the contract, the home could sell for much less than what it’s worth depending on the housing market at the time.
If you need to supplement income by looking to release equity from your home tread carefully. Learn all you can about the lender and the various types of programs that are available. Ask questions, see an equity release guide, read customer reviews, and read the fine print before signing anything.
Jem is a freelance writer that specialises in equity release. He compiled this article in the hope to educate the reader and help them make the big decisions in life. You can follow himon twitter now at @writerjem.