Equity Release:

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Equity Release:

Types of Equity Release Schemes:

 

Lifetime Mortgage:

You take out a mortgage secured on your property provided it is your main residence, while retaining 100% ownership. This will allow you to keep some of the value in your property for inheritance purposes for your family. You can either roll the interest up or make monthly repayments. Ultimately the loan and any accrued interest will be repaid when you die or if you move into long term care.

 

Benefits of a lifetime mortgage:

  • Your mortgage and accrued interest are only repaid when your home is eventually sold

  • Plans can benefit from a lifetime fixed interest rate so your advisor can demonstrate what the costs will be for each year of your life to remove uncertainty

  • A “no negative equity” guarantee ensures that regardless of the amount owed and the future value of your property your liability can never exceed the value of your home

  • You can customise your plan to suit your needs whether that’s making lump sum repayments or protecting an inheritance

  • A drawdown option lets you release an initial cash lump sum while establishing access to a pre-approved further borrowing facility

 

Risks of a lifetime mortgage:

  • Allowing the interest to “roll up” over time could be more expensive than a traditional mortgage

  • Releasing equity might affect your tax position and entitlement to means-tested benefits

  • Future property prices might be higher or lower than they are today

  • Releasing equity from your home will reduce the value of your estate, affecting the amount of inheritance you might leave

  • Consider the implications of securing other debts against your home

  • Consolidating debts over a longer period may mean you pay more overall

 

Home Reversion:

This is where a Home Reversion provider will purchase part or all of your home off you at below market value in return for a lump sum or regular payments. You have a right to continue living there until the day you die rent free as long as you agree to maintain and insure the property. You can also keep a percentage of the property for future use such as an Inheritance for your family. Your percentage will always remain the same despite the value of your property at all times unless you decide to release further equity at a later date. Once the plan finishes the property will be sold and the sale proceeds will be shared according to who owns what percentage of ownership.

 

Benefits of a home reversion plan:

  • You’ll typically receive between 35% to 60% of the full market value for the share of your home sold depending on how old you are when the plan begins

  • The older you are the higher the amount you will usually receive

  • The amount you receive is discounted in exchange for rent-free lifetime tenure or until you go into long-term care

  • You’ll benefit from any increase in the value of the property and share any decreases in value

  • You can guarantee an inheritance as the percentage sold is a fixed amount

 

Risks of a home reversion plan:

  • The deeds and ownership of the property would be transferred to the home reversion provider. You would retain a beneficial interest in the property

  • Releasing equity might affect your tax position and entitlement to means-tested benefits

  • Future property prices might be higher or lower than they are today

  • Releasing equity from your home will reduce the value of your estate, affecting the amount of inheritance you might leave

  • There are implications of securing other debts against your home

  • Consolidating debts over a longer period may mean you pay more overall

 

Interest-Only Lifetime Mortgage:

If you’re over the age of 55 an interest only lifetime mortgage could allow you to release a cash lump sum via a mortgage secured on your home. You also retain full ownership of your property. This is the most cost-effective method of equity release as it allows you to manage the associated interest charges by making monthly repayments. As long as you keep up with the interest payments the amount you owe never increases. This avoids the compounding of interest associated with lifetime mortgages, where interest is charged on the interest already added to the mortgage.

 

To qualify, you must meet the provider’s affordability criteria. If you can’t afford or choose not to make full repayments you can elect to make partial payments, to help reduce the long-term cost.

 

Benefits of an Interest-Only Lifetime Mortgage:

  • Unlike conventional mortgages, the interest rate for lifetime mortgages can be fixed for the life of the plan

  • If your circumstances change, you have the option to switch to a lifetime mortgage not requiring repayments (a higher rate of interest may apply)

  • If leaving an inheritance is important to you, some products allow you to protect and retain a certain amount of equity in your property

  • If you want to access more funds in the future, some products will allow you to add a pre-approved flexible borrowing facility

 

Risks of an Interest-Only Lifetime Mortgage:

  • Releasing equity might affect your tax position and entitlement to means-tested benefits

  • Future property prices might be higher or lower than they are today

  • Releasing equity from your home will reduce the value of your estate, affecting the amount of inheritance you might leave

  • There are implications of securing other debts against your home

  • Consolidating debts over a longer period may mean you pay more overall

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San Francisco, CA 94158

 

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