Equity Release

Equity release is a means of generating income from an object, which has a capital value, owned by a person. For example, if you own a house you can obtain a steady income from it and still keep the ownership of the house. But at a later stage or after your death the money you got has to be repaid with interest. In case of death the repayment has to be made by your heirs. Equity release is almost like the reverse mortgage practiced in the United States and some other countries. You can either have a regular periodic income or a lump sum amount.

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.