With the increasing popularity of the equity release scheme over the recent years, you might want to know the possibilities of getting your hands on some extra cash if you are over 55. Extra cash always comes handy in order to top up your pension or carry out any of the home improvements or even going for a long-due vacation. All this might sound enticing, but before considering it seriously, you should know about the pros and cons of equity release.
Pros of releasing equity in your home
• The money you release from your home is tax-free, and you can spend it the way you like.
• You will still get to stay in your home without having to downsize it or move.
• No need to make any monthly repayments unless you want.
• You can either have the lump sum money or keep taking out smaller amounts over time to the limit provided by the plan provider.
Cons
• Your home can’t be left as an inheritance, as the scheme provider will have to be paid first whenever you move out or die.
• Your state benefits may be affected.
Here are the pros and cons of the two main types of the scheme – Lifetime mortgage and home reversion plan.
Lifetime mortgage
This may be regarded as a loan that is secured on your home. So, you continue to live in your home while maintaining the ownership ad when you die or go for long-term care, your home is sold, and the loan is repaid along with interest.
Pros
• You will still of the legal owner of your home. When you die or sell the property, you will have to repay the loan along with interest.
• You will never owe more that your home is worth, thanks to the ‘no negative equity guarantee.’
Cons
• The interest rate may be higher on a lifetime mortgage compared to the standard mortgage.
• The amount may grow rapidly over the years due to the effect of compound interest.
• If you ever decide to pay it off early, you will have to pay redemption fee.
Home Reversion Plan
Pros
• You would be able to live rent-free for the rest of your life.
• You will not have to pay interest on the received money as it is not a loan.
• You can sell a percentage of your home and don’t need to sell the whole of it.
• You get to create an inheritance for your family if you sell only a part of your home.
Cons
• You sell at a reduced price which is considerably below market value.
• You will not be the owner of the property anymore.
• You will, however, still be responsible for the costs of the household including the bills and maintenance.
The pros mentioned above and cons will help you in deciding which scheme to get. For further information, read more news at LondonEquityrelease.net.
