Drawdown equity release:

A subset of lifetime mortgages, the drawdown mortgages are one of the most popular forms of equity release. Working on the theory of compounded interest, the lender releases a sum of money based on the value of your home and the interest borne on such loan is only added up to the original value of the loan. You can receive a small part of the total loan initially and then keep drawing out as and when necessary. The entire loan plus compounded interest is repaid when the house is sold off finally. Such equity release takes into account the natural house price inflation.

Benefits of using drawdown equity release:

       Such kind of equity release plans is most suitable for those who do not want the entire lump sum loan amount in one go. You can borrow money as and when you like as per your requirements and you need to pay interest only for the amount you actually withdraw.

       Another benefit of this plan is that you have to pay interest only for the time you have actually availed the loan. Hence this kind of mortgage is quite useful towards the dusk years of your life.

       There is no negative equity guarantee attached to drawdown equity mortgage which means that even if the loan amount exceeded the total value of your house property, yet you would have the right to continue living in that house.

       There is heavy competition in the market for such kind of equity release and hence you can bargain interest rates as well as the terms before availing them.

       Unlike home reversion mortgage, you can avail this scheme even if you are as young as 55.

       You get total flexibility with this scheme since it allows you to move home if you wish at a later date.

       The added benefit is that such a product is being regulated and monitored by the Financial Service Authority as well.

Drawdown plans that commonly used with equity release schemes:

You can choose different flavors of drawdown plans that come with such equity release schemes but the essential part of all such plans is that they provide you with a previously agreed upon loan amount sanctioned depending upon the value of the property and the age of the youngest applicant. The options that you can avail under the Drawdown plans include early repayment penalties, equity protection clause, increasing cash reserve, and interest calculation methods. No matter what the variations maybe in these clauses, usually the lenders would require you to take up a minimum loan of £20,000 for a minimum period of 10 years.

Equity release is a process of acquiring a stable source of income, from the capital value of your house while maintaining the use of the house. The fine print is that the loan has to be repaid to the provider at a later time, usually at the time of death of the owner. So this is a perfect option for people above the age of 55, who have locked their capital in the house and who wish to use it fund the retirement. It is also perfect for senior citizens who do not want to leave large inheritances to the heirs.

Facets and features:

House equity release is of two types. Home reversion and Lifetime mortgages

Home reversion plans: The home owner sells a fraction or whole of the property to an individual or a reversion company. The reversion company provides a regular income which is tax free to the borrower who continues to stay in the property till his/her death even though they no longer own it. But with this equity release the borrower may only get 20% to 60% value of the property. Reverse option also allows the excess money from the release to be given to the heirs.

Lifetime mortgage release: The loan given on the property is used to generate an income for the borrower. The money is paid as a lump sum. Through the loan term, the interest is added to the capital. The amount is repaid when the home is sold after the borrower’s death or when the owner moves to an old age home. The debtor retains the legal ownership of the house along with the other costs and responsibilities of owning the property. But the problem with life time mortgages is that sometimes the accumulated and interest and capital adds up to more that the sale value. This could result in the company demanding the outstanding balance from the residual or remaining estate.

Because of these reasons, the equity release market has been brought under the limit of SHIP (Safe Home Income Plans), which gives numerous guarantees to the borrower. This ensures a no negative equity guarantee to the borrower where there is an assurance that the loan repayment amount will never exceed the value of the property.  All leading equity release providers are regulated by the Financial Service Authority (FSA), so that a fair deal is given to the borrower.

Payments and charges

The charges for equity release vary with the company. On an average the borrower is likely to incur an

·         Arrangement fee of 500£ to 1000£ usually a percentage of the loan.

·         Valuation Fee of 200£ - 500£ which is linked to the property value.

·         Legal costs 500£ to 1000£ each.

·         Administration fee of 150 to 300 pounds incase you decide to withdraw from the deal.

·         Insurance premium 200£ -300£ on the property.

·         Application Fee.

Ask the provider to break up the charges so that you can compare the deals given by different companies. Remember that you drive the deal. So don’t hesitate to do some research, because like every other financial product these are cleverly marketed.

Key features to consider:

F      The basic idea of an equity release is to help you raise a mortgage against your existing property and use this amount even while you are staying in your house. You can continue to stay in your own house until you die or you move into long-term care.

F      With this plan you are able to get a lump sum tax-free amount of cash or else a regular income or even a mixture of both – depending upon the type of plan you choose for such release. The biggest benefit is that you can spend this money in any way you want to without any restrictions.

F      This plan helps you to also reduce the inheritance tax incurred by your family or loved ones. After receiving the lump sum or installments, you can even choose to give up the entire amount to your family as well.

F      Taking up the plan does not prohibit your right to move into a new house property as far as such new property is able to meet all the terms and conditions of your existing mortgage.

F      The best part of taking up equity release is that such mortgages are financed by some of the most leading financial institutions of the country and hence you can be assured that your life ahead lies in good hands!

Fees charged in equity release:

You will be charged an upfront equity release arrangement fee by your broker and the provider, as per their choice. It does not matter which type of scheme you go for since the average costs will not differ. The estimated costs can be laid down as follows:

§         Administration fee:        £150 to £300.

§         Arrangement fee:          £500 to £1,000.

§         Valuation fee:               £200 to £500.

§         Legal costs:                  £500 to £1,000.

§         General advice costs:     £500 to £1,000.

Tips to compare equity release:

You can compare between the basic two types of equity release schemes on basis of their types – lifetime mortgage and home reversion.

*         Interest calculation: This will be a percentage of the advance for lifetime mortgages while none is charged for home reversion.

*         Fall in value of property: You can protect yourself against this in lifetime mortgages by choosing a ‘no negative equity guarantee’. In case of home reversion, the provider shares with you such fluctuations.

*         Rise in interest rates: While you are at no risk in case of home reversion where you need to pay no interest on mortgage, in case of lifetime mortgage you can go for a plan that charges you fixed rate over lifetime.

*         Repayment: You can repay early at some charges only if you go for the lifetime mortgage scheme.

With proper use of equity release, you can live your retirement life just the way you had imagined for yourself – financially problem-free forever!

The new remortgage policy:

The best way to refinance your needs with Remortgage equity release, the remortgage can be defined as paying off of one mortgage with the proceeds received from a new mortgage using the same property as security. Such a ‘switching’ is done usually to secure a more favorable interest rate from the new lender. In effect, there is only a transfer of mortgage rather than a second mortgaging of the same property. Also this does not require you to move out of your house as well.

Reasons when you consider remortgaging:

F      When you are offered Remortgage equity release at lower and discounted interest rates.

F      When this helps you release the equity in your property for a better acquisition likes a new car, home improvement etc.

F      When it allows you to completely do away with the existing loan and interest thereon.

F      Eventually when such more money can be received at lesser rates than the current mortgages!

How do I remortgage my equity release?

Remortgaging could be like getting a fresh breath of air for your finances. Remortgaging equity release helps you to reduce the total amount of money required to be repaid as loan over a long period of time. Check whether the current rates are at least 1% higher than the one being offered to you. Remember that there are charges and fees attached with remortgaging and hence such transfer should be worth the deal.

Remortgaging also helps to release the hidden equity in the property that is the value between the market price of the house and the money you owe on it so far. The longer you have lived in your home, the better the equity you can get for it. Even major house improvements could help you to improve the market value of your house property. You should choose to change for a mortgage that gives you loan on a fixed rate of interest.

Remember that in essence an equity release plan is a conventional mortgage that holds a legal charge over your property for no fixed time and with no monthly payments as well. Remortgaging in such a condition would be perfect provided you secure them at good low rates.

Advantages of remortgage equity release:

*         Helps you to reduce your monthly outgoing payments by as much as 50%.

*         Helps you to consolidate your loans and make it into a more manageable form. Also the installments you need to pay will become easier to manage as it will be just one payment in all.

*         There is no restriction on how you can use this new fund received from the lender in the future. You can either pass it on to your family or even use it to improve your life even better.

What is equity?

The value of a property after deducting the mortgage amount is known as the equity of the property. You can generate a fixed income from equity release, which is calculated on the basis of the capital value of the property. There is a gain in equity as the mortgage is paid off or as the value of the property escalates.

What is equity release?

Equity release can be either a lifetime mortgage or a home reversion mortgage. Equity release calculators help one in calculating the amount of equity that can be released against a house. This allows you to predict the amount that you can receive if you chose either of the plans.

How to calculate equity?

Most websites related to equity release offer a calculator facility. You can provide the necessary information to the calculator which then tells you what percentage of the equity can translate to cash disbursement. Some calculators have advanced options for giving supplementary information like various disbursement alternatives etc.

How do you use the calculator?

When you access the equity release calculator, you are required to provide certain information needed to make the predictions. These include age of the property, locality, and the details of the owner may have to be provided depending on the type of calculator. Seek the help of a property evaluator to fill in these details.

What entitles you to an equity release?

Your age is the main eligibility for applying for equity release. Characteristically, the providers consider the age of the borrower and partners, if any. Usually firms lend to clients who are aged at least 60. But there are instances of lending to borrowers as old as 55 years. The presumption is that the younger the borrower, the lesser the percentage of the property value released. For example a 65 year old single man may be able to release 30% of the value of his property while a couple aged 65 and 60 may be able to release only 25% of the property value that they hold jointly.

The second criterion is, obviously owning a property with minimum mortgage liability. The last eligibility criterion is to be a resident of the country where you are applying for the loan. Most of the equity release providers also permit additional advances if the value of the property has increased considerably over the following years. The additional amounts will depend on the fraction of property sold at the outset, in case of reversion plans.

When applying for equity release it is suggested that you include the family in your discussions. The product that you choose must meet your needs as well as that of your family’s. Also it is recommended that you chose loan providers who are members of Safe Home Income Plans (SHIP) since they conduct business according to the code of practice set by FSA.

Different equity release schemes

The equity release schemes can be divided into two main groups, namely, lifetime mortgage and home reversion scheme.

·         Lifetime mortgage. Under the lifetime mortgage scheme the home is mortgaged against for the amount borrowed. The homeowner continues to own the home and live there until the death of the owner and spouse. The borrower has the options not to make any repayment, to repay at a later stage with interest or to pay partly, like interest alone. The borrowed amount can be obtained in lump sum or invested with an annuity scheme with the lender and get regular income. There is no restriction for the use of the funds received. It can be used for any purpose the borrower desires. The only condition is that all the prior liabilities on the property must be cleared. The funds obtained with lifetime mortgage can be used for this purpose. The borrower must continue to occupy the home until death or clearing the mortgage. The lender recovers his money by selling the property after the death of the borrower and spouse.

·         Home reversion. Home reversion scheme of equity release is selling a part of the home to the scheme provider. The home owner pays a small rent for the part owned by the scheme provider. As in the case of the lifetime mortgage the home owner has to continue to live in the home. After the death of the owner and spouse the lender sells the property and takes his share. The rest is credited to the estate of the home owner. In case the owner vacates the home the property is sold and the proceeds apportioned according to the agreement. The home owner also has the option to sell the property and share the value with the lender.

Comparing equity release schemes

The terms of all lending companies for equity release may not be the same. Read carefully the terms including those in small prints. If you do not understand certain terms do not hesitate to ask and insist upon getting an answer in writing. Make sure that the scheme is flexible enough to serve your purpose. For example, when one of you and spouse dies your need for monthly income may be lower. Ensure that the liability is reduce to that extend so that your heirs may get more. Also check the interest rates.

In short, the equity release schemes are good for the older people. But take all the care to select the best scheme suitable for you.

Do you face an uncertain future, with mounting mortgage payments, electricity, gas and food bills, or a chronic medical condition that is too expensive to treat?

Well! You can breathe easy! The equity release scheme may be your passport to reach that dream post- retirement destination you worked so hard for. 

What is Lifetime Equity Release?

Your greatest most valuable asset is your house.

• Equity or Lifetime Equity is simply the current market value of your house assessed by a Finance Company.
• Equity Release means encashing a portion of that value.
• Lifetime Equity Release is the once-in-a-lifetime agreement with a company to encash a portion of your House value. You have the option to receive cash as a lump sum amount OR as regular Monthly payments for the remainder of your life.

Priceless benefits:

The benefits you accrue from lifetime equity release are really priceless. The equity release lump sum amount is tax free. This allows you to enjoy the whole amount without getting worried or frustrated that a part of your hard earned money is taken away by the government. Moreover, you retain your loved home for the rest of your life. Only after your demise will the company gets the amount paid to you with interest from the sale proceeds of the house.

Are all eligible for lifetime equity release?

The answer is no. As in any other case, there are certain criteria that one should meet in order to avail this benefit. The four basic conditions that make you eligible for the lifetime equity release are given below.

You must:

• Be a senior citizen aged 55 years and above.
• Have an ownership of a house with a good market value.
• Have provided for hazards insurance cover
• Be a person paying taxes regularly

Interestingly, none of the above conditions look tough to meet.

Lifetime equity release fees

You will also have to pay fees for lifetime equity release. There are five such essential fees you need to negotiate:

• Solicitor’s fees for negotiating the agreement.
• Lawyer’s fees for verification, legal work and stamp duty.
• Property Appraiser’s fee for valuation.
• Appraisal, application and broker fees charged by the company.

These are unavoidable fees and are paid to ensure that you get the best deal. The key to saving money is to avail special offers and get the company to bear as much of the costs as possible.

The benefits of equity release seem obvious, but there are some important things you need to know before taking a decision. Most importantly, you may have to provide for dependant family members who automatically cease to be beneficiaries after an equity release. Approach only the regularized licensed companies for getting tax exemptions.

Remember, your decision can make or mar your retirement life, so consult only the best legal brains; engage only the most reputed firms.

The most important decision of your life beckons you! Act fast! Act NOW!

Types of equity release

There are two main types of equity release plans available. They are the life time mortgage and the home reversion. You get a steady income or lump sum amount in both cases.

·         In lifetime mortgage, you get a loan secured on your home. After the death of both you and your partner the debt with interest has to be repaid by the heirs. If heirs do not come forward to repay, the lender sells the property. After adjusting against the debt the balance is passed the debtor’s estate.

·         The home reversion plan involves selling the whole or part of your property. You have the right to live in your home. After the death of you and partner the property is sold and the proceeds are split between you and the lender. Your share is credited to your estate.

Advantages

 There are several advantages of the equity release schemes. The first and the most important advantage is that you get a tax free lump sum amount or a steady regular income for the rest of your life. Another advantage is that the inheritance tax liability on your estate is reduced. The value of your estate is reduced by the amount of the debt and interest on equity release. If a No Negative Equity Guarantee is included in the agreement the borrower is protected even if the market value of the property goes down. If the interest rates are reduced after getting into an equity release agreement, the borrower is free to opt for refinance.

Disadvantages

As far as the property owner, the borrower, is concerned the disadvantages are negligible. The inheritance by your heirs is reduced by your borrowing. If you wish to keep apart a good part of your estate, that also is reduced.

Precautions

Before going for an equity release you must be aware of its implications. All the terms and conditions should be clearly understood. It is better to take the help of a legal expert to understand completely your liabilities. If you move out of the house or you your partner moves out after your death the equity release agreement stands terminated. In that case you have to repay the borrowed amount immediately or you lose the ownership.

The equity release scheme is a great blessing for old home owners. They need not suffer for lack of funds at the evening of other lives. Even if you have not provided for your retirement you can lead a good life.