Equity Release – The Best Option
Home equity release schemes are a means of releasing money saved in the family home. It is expected that in excess of 50% of over-65s’ wealth is tied up in property. Equity release is considered an outstanding way to enhance retirement income. A home equity release scheme permits the person to live in their own home for the remainder of their life or until they go into a care home. Many schemes even allow a house move although the T&Cs vary heavily between schemes.
The principle is to permit older property owners to cash in on a home’s value without selling and trading down to a cheaper property. There are different plans under the equity release banner are becoming more popular every year overcoming the unhappy legacy of a disastrous period when property prices crashed in the late 1980s and early 1990s. At the beginning of the decade only a handful of financial companies provided equity release schemes. Today at least 40 equity release providers are in the market including big names. There are three basic kinds of scheme and both give homeowners and their spouses an assurance “Stay in your home for life whatever happens to interest rates or the economy”.
Home reversion plans are somewhat vary from equity release schemes although the underlying premise is identical. The main characteristic of home reversion plans is that they offer a lump sum payment rather than a monthly income. It is possible to get a shared plan that encompasses both a retirement income and a lump sum payment.
Seniors seeking a cash lump sum may wish to think a sell and rent back scheme. This includes selling to a private company and renting it from them. A further solution includes selling up, buying a smaller house and investing the difference in a form of tax-free savings to offer a retirement income.
The major fault with both these schemes is that homeowners risk giving up a lot of equity in return for a surprisingly small amount. Working out which kind of scheme best suits your circumstances can also be difficult. And that is why many people seek advice from specialist advisers. Be sure to go all the way through the pros and cons discussing it with your family. Ensure that you go for a member of Safe Home Income Plans. Many plans are too complex and offer poor value. Trading down to a smaller home can often be a better option financially.
Of course there are downsides to Equity Release. It may go against the grain to borrow against a home that is previously paid for but better this than to live with insufficient income. Also your children will lose some or all of the inheritance if taking equity release so they should be involved in the decision. Equity release is a big move but the majority children would rather that their parents have a good standard of living in retirement and if equity release provides that security then they will be more agreeable to this solution.
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