Tuesday, 26 September 2017

Equity Release: Will it release your stress?

Written by Posted On Monday, 14 November 2016 06:35

 

I know what just happened. You read the title; it spurred confusions and queries that very second. It’s great in a way because this curiosity might help you fetch out some important insights and preferably profitable options.

When there’s a mortgage left to pay, or you need some money assistance in your happy days of retirement; Equity Release can fetch you these benefits. Wait, I didn’t say it “Will”. That’s because there’s no guarantee that Equity release will suit best for your situation. In fact, you might even regret your decision! So, isn’t it better to get all the facts, analyze and then take the best decision? See, I don’t want you to miss on some opportunity that might prove gold for you.

After all, we stand different from each other and so does our situations; how can this scheme then serve a monotonous benefit to all? To your best convenience, some FAQs will be answered in this blog.

-          What Exactly does Equity Release mean?

Equity = Assets – Liabilities

Suppose you have a car that values $12000 and have a $5000 loan against it. So, your equity is $7000.

Now, when you get a loan over this $7000 for regular cash income or a lump-sum amount for comfortable future; it’s Equity Release.  (You’ll still continue to own that car until your die.)

DEFINITION: It’s a way to retain the use of your asset (say, your house) while loaning cash out against its value. The lender does get the repayment after you die.

It means you keep owning that place and will also have to continue staying there.

-          Are there any Branches of Equity Release?

Oh yes! There are majorly 2 types of arrangements:

-          Lifetime Mortgage: A mortgage loan will be taken against your (borrower’s) asset (house). The Capital gets add up to the compound Interest regularly. The wholesome amount will be repaid to the lender when you die or move out to a long term care. Till then, you hold full ownership of that asset.

 

-          Home Reversion: When, as an owner of the property, you sell it (or a part of it) to a reversion company, you receive a regular income or a big amount in exchange. The property belongs to the money lender now; but you, the previous owner, doesn’t need to vacate the property. You can continue to live in that property rent-free till you die or move out.

 

-          So, is there a limit to the amount that can be borrowed?

That depends on some factors:

-          Value: The Lender will first contact a professional to get the exact valuation of your property. Based on this research, the amount that can be borrowed by you will be decided.

 

-          Age: A major aspect that affects the decision of how much money you can borrow is your age. If you’ve filed for a joint application, your partner’s age will also be considered along with your age.

 

-          Health: If you’ve some medical history or certain present medical condition, you may receive a larger amount from your lender.

 

-          What minimum age is required to be eligible?

It differs for both the branches of Equity Release:

 

-          For Lifetime Mortgage: To be eligible for this, you need to be at least 55 years old.

-          For Home Reversion: Your minimum age should be 60 years for being eligible.

If you and your partner file the joint application, then the younger one needs to be of the eligible age.

-          What if the value of property falls later, to the extent that it’s unable to repay the loan?

Well, in certain rare cases, this might be a possibility that your property’s value lowers drastically and after your death, your old property is not able to pay off the loan. Your heirs will be then be paying off your remaining loan.

 

-          I don’t want to drag my heirs into this. Isn’t there any other way?

That’s the reason why it’s advised to opt for “No Negative Equity Guarantee”. With this, you will be assured of no debt to be paid off by your heirs. According to this, even if after selling out your property the loan isn’t paid totally, the remaining amount is written off.

These are some major questions that generally dwell up in the minds which desire to opt for an equity release. This proves to be a good option if your circumstance stands as a support. But to finalize this major decision, it’s recommended to consult a financial advisor who will specifically analyze your situation and recommend the best possible option for you.

 

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