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Equity release is one of the most popular ways of increasing your monthly income or getting a handsome lump sum for a project. This plan is usually recommended as a way to make extra cash especially if you are a home owner; the house gets the money for you. Confusing, huh? Let’s break it down.
Equity release typically refers to a loan given against property, which comes in two schemes
|Lifetime Mortgage Scheme|
|This is a plan in which the home owner gets the loan against the house but still retain ownership of the property. The loan, plus the accumulated interest, is recovered once the house is sold (usually in death of the homeowners or when they move to aided care). If the amount realized from the sale of the house will be more than the loan and interest owed, the difference is given to the next of kin.|
|Home Reversion Scheme|
|This is a plan whereby you sell part or your entire home but you are allowed to still stay in it as a rent-free tenant for the entirety of your lifetime. In this plan, the money is recovered by selling the house when you move out|
Equity release service providers such as Harwordquicksale has been an absolute lifesaver for many, and it is quite the in-thing with those above the age of 55. However, before you go all out and get yourself the hottest deal, there are a few traps you need to be cautious about.
|It Can Be Quite Costly||The sound of an additional income is sometimes so tempting that many fail to look beyond the costs that come with the loan. For instance, since the release schemes come with large sums, the interests can accrue quickly to huge amounts which increase your liability. In a home reversion plan for example, your home can be sold at a price significantly lower than its market value leading to a loss.||Before you take up any plan, it is important to do the math and see if the deal will benefit you in the long term. Sometimes it’s better to sell the house yourself and move on to another, and other times these release schemes will save the day.|
|Losing Out On Retirement Benefits||The government has a mechanism called pension credits that gives additional income to pensioners with low monthly earnings. Once you take up your equity release, your income automatically increases, thereby pushing you out of the bracket of people requiring pension credits.||Check your financial standing using the government benefits calculator or talk to your financial advisor if you are not yet ready to let go of the pension benefits. However, it is important to note that your benefits will shrink with additional income, even if you won’t lose it all. Additionally, even if your age doesn’t allow you to get the benefits now, the income from the release scheme can still hurt your future chances of government benefits.|
|Leaving a Legacy||Most people want to leave something behind for their children and grandchildren. However, equity release schemes make it possible for you to leave off your property such that at the end of it, you will have no property to bequeath the next generation.||If you have more than one home, you can take up an equity release scheme on one of them and still have the rest to leave to the generations that will come after you. Alternatively, if you need the money and have no other way of getting additional income, you take up a home reversion plan whereby you sell only a small part of your property, which can be bought back later on.|
Equity release schemes are very nice, and they come with additional income that doesn’t put a strain on your financials unlike regular funding options. However, before you take up a plan, make sure you have exhausted all other options. Equity release should be your absolute last option.
In order to understand whether an equity release scheme is fit for you, it is important to talk with a financial advisor who has vast knowledge in these schemes. You can get a custom quote and negotiate the best rates. It is important to shop around before you settle on any equity release service provider.
When it comes to financial matters, it is extremely important to understand the implications of your signature on the dotted line. Therefore, before you give anything out, read through the contract and check the fine print. If there is anything you do not understand, it is advisable to get a solicitor or financial advisor to explain to you what the terms of the agreement really mean now and in the future.
Our financial circumstances seemed to be going terribly wrong. We had no money left for a comfortable living as we had to clear a debt. Thanks to Home Buying and Equity Agents, we could repay our debt and regain control over our financial situation. Thank you for the help!
Evelyn W. Baumgart
I wanted to give my daughter some money as an early inheritance. Home Buying and Equity Agents gave me some wonderful options and I chose a lifetime mortgage. Now I have the money to spare and can continue to live in my house which I love so much. Thank you!