5 Simple Facts About Equity Release
An equity release scheme is an arrangement that allows you to use the equity in your home to provide you with a steady stream of income or a lump sum of cash. Home equity release schemes have become increasingly popular today amongst retirees who are financially strapped as a result of the economy, the loss of investments and retirement savings or who need a lump sum cash payment to pay for health care or other family needs.
Here are 5 simple facts that you need to know about equity release in order to determine if it is right for you:
- You get to continue living in your home until it is sold, you pass away or have to go to assisted living.
- Allows you access to an additional source of income derived from the equity in your home.
- Provides you with the enjoyment of your retirement years.
- Upfront costs are lower than taking out an equity loan or a reverse mortgage.
- No repayment plan until your home is sold, you pass away or you go to assisted living.
Sounds too good to be true? Keep reading.
Equity Release Schemes
Before you opt for an equity release scheme, you need to understand the different types of products available today and the advantages and disadvantages. You should also seek the advice of a financial expert. Although there are many different versions of equity release programs, most fall into the following general categories:
- Lifetime Mortgages
- Home Reversion
- Shared Appreciation Plans
Lifetime Mortgages
Lifetime mortgages allow you to take out a loan that is secured by the equity in your home. You still own the home, are responsible for maintaining it and are allowed to reside in your home until you sell it, pass away or go to a long term care facility.
Home Reversion
This type of equity release product allows you to sell all or a portion of your home to a reversion company. In exchange, you get to live in the home as long as you want, and you receive an income or lump sum payment.
Shared Appreciation Plan
A shared appreciation plan allows you to sell a percentage of your home to a lender. You agree to give up a share of your home’s appreciation value and receive a lump sum payment from the lender in exchange. The lender benefits when home prices appreciate.
Advantages and Disadvantages of Equity Release
The advantages of equity release provide you with a quick way to receive cash or additional income secured by the equity in your home which does not need to be repaid to the creditor until you sell your home, pass away or move to assisted living.
The disadvantages of Equity Release include a loss or reduction of (1) passing on the inheritance of your home to your heirs; (2) loss or reduction of any future appreciation; and (3) loss or reduction of ownership of your home.
Equity release is not for everyone, but for those retirees who need an additional source of cash or income, it is an option that should be considered. Although there are other alternatives such as taking out an equity line, selling your home, moving to a smaller and less expensive home, or renting, you should consult with your tax adviser or financial adviser before making any final decisions.
By educating yourself about the different types of equity release products, you will be able to make the right decision for your individual financial situation.