Equity Release Schemes have helped many older people increase their monthly income or create a cash lump sum. There are important things you need to know before taking out an Equity Release Scheme. Here are some pointers:Checkout equity release calculator in the UK for more info.
Make sure that you get a good idea about how much will eventually be paid back at the end. You should get a full, detailed illustration from your Equity Release Provider before proceeding. You can also get a quick, but very inaccurate, feel for the total being repaid by using an on line cumulative interest calculator. This will produce a lower figure than will really be paid back because there are other costs added to the start of the loan, but it will get you into the ball park area.
Equity Release Schemes are lifetime mortgages offered by High Street banks, building societies and specialist lenders. The most reputable of these are members of Ship (Safe Home Income Plans) which is a self-regulating industry body set up by the lenders. They give certain guarantees and assurances about how their schemes work such as making sure those borrowers will never be asked to repay more than the value of their home.
Lifetime mortgages offer you an immediate lump sum or regular monthly payments. You can also opt for a number of small lump sums called drawdown payments). These are essentially a loan which is set against the borrower’s house. The home is sold and the lender takes the balance of the amount lent, plus all of the interest it has built up, when the borrower dies or goes into long-term care.
The problem is that the total mount of interest charged on these loans can amount to a surprisingly large sum because the interest is added to interest, called “rolling up.” For example, a 61 year old borrowing a £50,000 lump sum would see the debt increase to over £160 000 by the time they were 86.
There are several different types of life time mortgages available and they need careful research.
In another approach, you could choose a Home Reversion Plan, instead. This is completely different from a lifetime mortgage because the homeowner actually sells a percentage of their home’s final value. They get an immediate lump sum in return. The lump sum received will obviously be far lower than the share of the house bought by the home reversion company. Some people think that these might represent poor value.
Another lifetime mortgage option is a fixed-payment loan. The borrower is told at the outset what the eventual payment will be when their house is sold, in exchange for receiving a lump-sum now, but the final amount is much larger than the amount borrowed.
Make sure that the scheme you choose is regulated by the Financial Services Authority because your rights and the level of protection that you get are far better. Also, it is crucial to get a advice from an Independent Financial Advisor who specialises in this field because you could spend a year carrying out research your self and still not really appreciated the subtle difference between plans. There is no substitute for experience with Equity Release Schemes.
Also, choose a solicitor yourself who will act in your best interests. Not many solicitors know much about this area so get a specialist one who will explain everything to you and protect your position.