Being able to provide a financially stable future is one of the major concerns of retirees. Based on the fact that they are no longer a part of the work force, obtaining a fixed source of income can be quite difficult. Some retirees who engaged in active retirement planning during their working years may have saved just enough to meet their daily expenses, but what about leisure activities? Emergencies and other situations can arise affecting the amount of income one has in a month. Plenty of retirement options exist from state pensions to interest only lifetime mortgage plans.
Retired folks are entitled to leisure activities and to be quite frank, they have sufficient time to do so; however, many of them are not able to engage in leisure activities due to the fact that they do not have sufficient income. Today, there is a solution for some retirees. Those who own a property can obtain an additional source of income during their retirement period through equity release. Equity release allows retirees to release equity from their property.
An increasingly popular form of equity release plan is the interest only lifetime mortgage which has bred familiarity amongst retirees by the recently withdrawn Halifax retirement Home Plan. However, recently withdrawn it has left a void in the interest only lifetime mortgage market, the reason being that conventional mortgage lenders have withdrawn or made it extremely difficult for retirees to get a mortgage.
However, this is now becoming a niche retirement area and there are a few specialists left that can still provide advice and get access into the market. Companies such as Stonehaven equity release buck this trend in offering an interest only lifetime mortgage.
Most equity release plans consist of two amounts that need to be repaid – the initial loan amount and the accumulated interest. This is however not the case with the interest only mortgage. This type of plan does not allow interest to accumulate by giving retirees the opportunity to repay the interest amount on a monthly basis for the rest of their lives. Once they die and the mortgage needs to be repaid, only the initial loan sum amount will have to be repaid since the interest amounts have already been repaid.
Based on the above mentioned fact, the interest only lifetime mortgage is highly preferred by retirees who want to be able to leave an inheritance for their children. When their property is sold, the part of the sales proceeds that will be left after the equity release provider has received his payment can be left behind as an inheritance.
If the home is the inheritance a retiree wants to leave behind, this mortgage option is still viable. Selling the home is not an absolute must. What it will come down to is whether you have savings or a life insurance policy that will pay out enough benefits to cover your mortgage.
By obtaining a life insurance policy to cover a mortgage and funeral expenses, you ensure your children can keep their childhood home. It also means the lifetime mortgage can be paid upon your death as the contract stipulates. For some this is an extremely important factor in deciding what type of equity release to apply for.
The fact that you pay interest on the mortgage during your lifetime also reduces the amount needed at the end. It can make a combination of life products like insurance and a lifetime mortgage more appealing than alternatives.
There are definitely alternatives to interest only lifetime mortgage plans. A drawdown option in which you take only the amount of money you need is one. With a drawdown scheme you pay interest only on the money you take out of the account. The disadvantage is for early payoff. With an early payoff there can be fees associated with it. You also end up paying interest at the time of payoff rather than before. It is just one option you have should the interest only option not fit your current situation.
Home equity release is not for everyone. The disadvantages can be too much for some or the uncomfortable situation of home reversion in which part of a home is sold can be too much. If you feel interest only lifetime mortgage is right for you speak with an adviser, agent or broker who offers these plans. They can further explain the details of each type and the best advantages of interest only options, ensuring you get the right product.
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