In a world where most of the employed people find it difficult to make both ends meet, the problems for people who retire or are forced to leave their jobs because age catches up with them are paramount. When regular monthly income dries up and only the savings remain, the idea that the entire upcoming life would be easily spent becomes a dream. In such cases, releasing equity is probably the only option to save you from financial bankruptcy.
It is important to understand that there are two problems faced by the people who near retirement or near the age when they can’t work anymore. Firstly, people get accustomed to a comfortable and lavish lifestyle during the time when they enjoy great jobs. Your job might end but the spending to maintain the lifestyle won’t. Secondly, the debt repayment schedule accepted while taking into account the monthly salary would also need to be adhered to even if the monthly salary isn’t coming into the bank account any more.
Considering these serious financial problems, life can become extremely difficult unless you look towards the option of releasing equity. Equity release schemes simply help you in releasing the equity on your home as a loan. Financial institutions offer you a loan in the form of a large lump sum or in the form of monthly instalments over the equity of your house.
This option of equity release is known as lifetime mortgage. Under this option you have several choices:
• Interest only
• Drawdown
• Enhanced
• Roll-up
Roll-up is often a standard for lifetime mortgages, although it too has a little difference from the mainstream product. A roll-up provides you with a lump sum and then monthly instalments. Interest only is fairly simple to define since it means you make a monthly interest payment thereby leaving only the principle balance of the loan when you move out or expire. Drawdown sets up an account with a limit in which you draw on the account when you need income. You only pay interest on what you have actually used from the release of equity rather than an entire lump sum.
Enhanced is a specialised lifetime mortgage for those with a detrimental illness. It allows you to take more money out initially on the premise your life expectancy is shorter than most retirees.
The lump sum amount or the monthly instalments can be used to repay debts and continue with a comfortable lifestyle till the time that you die or are taken into long-term care. In simple words, by releasing equity, you can sign up for a comfortable life till your life ends.
There is another option you can use for releasing equity in your home. It is called home reversion and it is not a loan. This option is actually a sale of all or part of your home. You retain ownership of the portion you have not sold and this gives you the lifetime tenancy agreement rent free. In this instance you often find the sale of the house is absolutely necessary in order to satisfy the deal with the home reversion provider.
The home reversion provider has set up the equity release on the premise of making money through the increased value of your home. It is why they are willing to give a little tax free money to you for the sale of part of your home and let you live there rent free. This option is not ideal for many since it means selling your home. You also need to be at least 65 to start this equity release. With a lifetime mortgage plan you can be 55.
The only problem with this idea is that the loan amount would get repaid by the sale of the house in most cases. However, the house would never get sold while the owners live in it and thus the sale would only happen once you have left this world. If these benefits sound like something you could definitely use then releasing equity might be the best way to make your remaining years comfortable. Before signing any paperwork it is usually a good idea to speak with your beneficiaries. Your family will be responsible for satisfying your accounts. They may feel it is possible to save the home from sale as well as helping you out with some of their income. All in all, the release schemes bode well for people who want to live a great life even after retirement without any financial restraints.