Equity release is an option available to home owners as a way to get money out of their property. It can be seen as another source of income. The products in discussion here are only offered to people who are at least fifty-five years of age. There are many ways in which the money received from releasing equity can be used. Let’s take a look at some of the most common uses for the money.
Clearing Debts
Some pensioners have large outstanding debts that become difficult for them to repay in their retirement period. Instead of using their retirement funds to finance their daily needs and to enjoy their retirement, they normally have to take it to repay their debts. With equity release, they are able to repay their debts thus allowing them to use the money that they have to enjoy their retirement.
Some pensioners are still busy paying off a mortgage on their property. They might need to use their retirement funds to make monthly mortgage payments. Equity can be used to pay off an existing mortgage on a property thus resulting in no more monthly mortgage payments.
Being Freer in Retirement
Releasing equity can also be used to improve your lifestyle in retirement. It is very important to enjoy your retirement. After working hard your entire life, you should be able to enjoy your retirement period. However, your retirement funds might only be sufficient to meet your daily needs. You might want to go on a vacation or be free in what you do and buy but are unable to do so due to the fact that your retirement funds do not allow for more than your daily needs. In such cases, releasing equity can give you the money you need to enjoy your retirement. You can then afford to pay for your holiday or to even buy your dream car.
Helping Family
Finally, the money received can be used to help your family financially. You can use the money to finance the education of your children or grandchildren. Releasing equity from your property will eventually influence your children’s inheritance so it might not always be the best option especially if you want to leave an inheritance for your children.
Inheritance Talks
Leaving an inheritance when you use equity in your home is not always possible. It depends on the structure of the lifetime mortgage or home reversion product you decided to use for releasing the equity.
First home reversion is a sale of your entire home or a portion of it. You do not receive full value for your home even if you sell the whole thing. The reason being – you live in the house rent free, under a lifetime tenancy agreement until you die or decide to move. If you are 65, the youngest you can be and use this product and you live until you are 100 that is 35 years the purchaser would have to wait for you to move so they could sell the home and recoup their losses.
In that span of time your home can increase and decrease in value numerous times. The more you sell of the home, the less that is left when you move on and therefore the lesser the cash sum your family can inherit.
Lifetime mortgages are a totally separate product. They are a loan. A loan that has to be repaid eventually it just happens at death or move. You can live in your house your entire life or you might move at 85 to a retirement home for hands on care. Whenever you are leaving the house permanently the loan has to be repaid including any interest that accrued. There is only one option, interest only lifetime mortgage, in which you make a monthly payment paying off the interest. The principle remains the same, thus as long as the home value is more than the principle sum you took out there is inheritance for your family.
The Application Process for Equity Releases
You know how to use the money. You know there are options to leave inheritance behind. Now, you need to understand the application process for equity release. You must be at least 55 years of age for lifetime mortgage, 65 for home reversion to even consider being qualified. Next you need to own your home or be able to pay off the small mortgage that is left on it. The value amount is based on the evaluation of the home plus any outstanding mortgage. Your health is another consideration.