subject: Equity Release Schemes – How your House can Help you with Retirement? [print this page] Equity Release Schemes How your House can Help you with Retirement?
While working full-time for most of your life may be tough, retirement can sometimes be tougher for most people. Times are hard, and many people find that savings, investments and pension are not enough to stay afloat. Then again, not most people plan their retirement well in advance, and it's not very uncommon to see people struggling with finances at a time when they were supposed to be sitting back and enjoying the fruits of their labour. At such times, equity release schemes seem to be a great option to cope with the high cost of living and a limited income.
Although not one of the best choices around, equity releases are more of a damage-control vehicle than a retirement plan. However, as far as damage control vehicles go, they are the soundest. Take a look at the features of equity release schemes:
You take a loan against your house as collateral. This loan can either be a lumpsum, a regular income or both.
You continue to have possession of the house.
You need not repay the loan as long as you live.
Upon your (and your partner's) death or move into long-term care, the loan is repaid from the sales proceeds of the house.
You can see, then, that equity release does provide you with an extension to comfort and well-being without compromising on security.
There are basically two types of equity release schemes: Lifetime Mortgages and Home Reversions.
Lifetime mortgage involves taking a loan on your home which is eventually repaid upon your death when the house is sold. It is much like a regular mortgage, except that you don't have to make any monthly repayments, and the loan you receive can be a lumpsum or in instalments, i.e. it has a 'flexible drawdown'. In some case, you can pay the monthly interest, so that only the principal amount is recovered from the house upon sale. In other cases, you can choose to pay nothing, and let the whole amount be recovered from sales proceeds. In this case, you retain both ownership and possession of the house.
Home Reversion involves selling a portion of your house for a loan. In this case you can choose a lumpsum OR regular income, not both. When your house is sold off, the proceeds from that share go to the loan provider and the balance can be passed along as inheritance. This is typically quite suited to those who are not facing a severe cash crunch. In this case, you no longer own the house but can continue living in it.
While looking for equity release schemes, you are bound to come across Sale and Rent Back or Sale and Lease Back schemes, which are NOT equity release schemes. This involves selling your home for a lumpsum and renting it back, which means you lose ownership although can retain possession as long as you pay rent. Moreover, these schemes are barely regulated, and there's a very good chance you could get swindled. Therefore, ensure you are looking at 'genuine' equity release schemes only.
To start looking for an equity release scheme, start with a website that browses all the providers in the open market for you, and gets the best deals to your inbox. This way you save on a lot of time & money and also get to compare and pick confidently. So act fast and save your retirement while you can.
