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Equity Review | December 16, 2017

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The Diversity of Equity Release Plans

The Diversity of Equity Release Plans
Kenneth Hardman

There are many different types of equity release plans on the market that will help many people make the right choice for them. Some of the most popular types include interest only lifetime mortgages, as well as others such as drawdown and enhanced schemes.

These plans are structured to include all sorts of people who lead different types of retirement lifestyles. Take a look at some of the equity release plans available below to figure out which one is right for you:

Lifetime mortgage equity release: The premise of this type of equity release plan is simple. The provider of the plan essentially gets paid back after the house is sold after your death or moving into long term care. This is ideal for people who want to protect their families after their death and it gives you the chance to have a capital lump sum, or income, whichever suits you.

Considering the types of economic times we live in at the moment, a lifetime equity release plan is a good idea if you are planning to inject cash back into your property; hopefully for an upturn in the market shortly. The reason why these types of lump sum plans are popular is because you can use the cash you get in one go for important uses, as well as have money to live on. In essence, you can spend the monies on whatever you choose.

Drawdown equity release plans If you choose a drawdown plan, it gives you more flexibility and choice. This is because drawdown equity plans allow you to own your property completely. You take an initial cash lump sum, but NOT the full amount allowed. The monies set aside and not taken are held in reserve in case you require further funds in the future when you think the time is right. The advantage is that you are only charged interest on the cash you have actually withdrawn. This saves interest charges over the longer term.

Interest Only Lifetime Mortgage: this is a lump sum lifetime mortgage with a difference. It is designed to pay off the interest of the loan over your lifetime, but not the principle sum. It is like a traditional interest only product except there is rarely a time limit to pay off the principle sum. You simply pay on the interest until you decide to sell the house and pay back the loan or death occurs. It keeps the interest from increasing the repayment balance and thus secures at least a partial inheritance for your family in the end.

Home reversion: With more studies showing that parents want to help their children get on the property ladder or protect their inheritance, home reversion is a type of equity release scheme that allows parents to do exactly this. If you are over 65, you can give your children a chance to have their own inheritance because they can get it through selling a portion, or specifically a percentage of the home. You can also use home reversion to give yourself a stream of cash for your personal needs as well. Home reversions have declined in popularity, however still has a part to play in the whole scheme of things.

Which Equity Release Plan?
This will depend on many factors such as your age, property value, property type & also health and income levels. Anytime you take on a home reversion or lifetime mortgage you gain tax free cash. You can do so as young as 55 for lifetime mortgages, but age 65 for home reversion. This is going to determine which plan is best for your use. The money can be used for anything such as home repairs, improvements, or fun. For example, holidays you always wanted to take, a new car, paying for your grandchildren’s university education and other reasons exist for needing money. It also means you can use the money you get from these loans or home reversion on these needs.

You may want to limit what you take out and how to ensure there is a little inheritance left. The different plans make it difficult to save inheritance with some of them and others are easier to leave money for beneficiaries. Always talk with your family regarding the use of the money and the type of loan. In this way you have more than one person helping you choose an appropriate product for your retirement.

Top tip: Always look for the equity release plans that suit your lifestyle and requirements before you sign on the dotted line. Shop around to find the best equity release plan and negotiate with the lenders. Ensure that it’s flexible enough to move home with you as some equity releases schemes do have monstrous early repayment charges.

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