Many people find themselves in need of additional cash especially in their retirement. Traditionally, retirement has been a time where one faces financial difficulties and a reduced sense of meaningful lifestyle. Since many old fox do not want to rent out part of their home, sell it or rely on family for financial support, there is a way out. home equity release offers a practical solution for retirees or individuals over the age of 55 years. It gives them access to the value of their home for their own use in retirement to maintain a comfortable lifestyle or meet emergency financial requirements.

Extra information about equity release

Types of equity release

There are two forms of home equity release, that is, lifetime mortgage and a home reversion scheme. With a reversion scheme, you are selling part of your home as opposed to borrowing against its value. Your home ownership is transferred to the reversion company such that you only win by living longer or lose if you die early since the company would have paid you less than what you deserve. On the other hand, a lifetime mortgage is a scheme in which you borrow against the value of your home but retain full ownership of your home. However, your debt is only repaid upon your death or when you move out.

Variable vs. Fixed-rate Lifetime Loans

Fixed-rate lifetime loan may be appealing initially because you know upfront what you will pay over any specified period of time. Their Achilles heel is that there is uncertainty over when the loan may be borrowed as well as if penalties exist in case the debt is repaid earlier. Variable loans offers flexibility both at the start as well as the loan matures. Since most people neither know how long they are going to live nor does development of any change of circumstances in their retirement, variable rate offer a better alternative. In fact, a variable rate lifetime loan offers lower repayment over longer period of time. Any retiree looking for a home equity release should consider a variable over fixed rate loan.

Who is it for?

Since equity release option is a lifelong commitment, you may find yourself highly restricted in case of change in mind. For instance, if you decide to move out or want your equity in exchange for something else later on, the reversion company may impose hefty penalties. For this reason, if you do take one out, be sure to check against the completion of the first repayment charge. In case you do not know when to do it, watch out for declining interest rates.

Identifying the right release Scheme

For one, seek financial and legal opinion from ER1, CeRER and CeMAP qualified advisers before opting to use equity release scheme. Secondly, explore other options like unsecured loans, mortgage extensions, downsizing as well as grants and state benefits. In addition, borrow the minimum amount you need, choose a scheme with no early repayment charges and consider a scheme that lets you pay monthly interest repayments.