Last Updated on July 13, 2024 by Asfa Rasheed
There are several alternatives to think about when it comes to retirement planning. One method that is gaining popularity is equity release. This allows retirees to access the money locked up in their homes without having to sell it. There are several equity release plans available, each with its own set of advantages.
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The many forms of equity release plans are as follows:
- Mortgages for Life Lump-sum
- Mortgages for Life Drawdown
- Mortgages for Life Only Interest
- Mortgages for Life Plans for Home Reversion
However, there are two sorts of equity release schemes: lifetime mortgages and property reversion plans. Both allow homeowners over the age of 55 to withdraw cash from their homes and stay in their homes until they die or enter long-term care. For equity release guidance, use our Equity Release Calculator or contact one of our experts.
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What exactly is a Lifetime Mortgage?
The lifetime mortgage is the most well-known and widely used sort of equity release arrangement. You take out a loan against the value of your home and make no payments until you die or go into long-term care under this type of programme. The interest on the loan is added to the total amount, which means that the burden might soon become overwhelming. The Equity Release Council is a group that most equity release lenders who use lifetime mortgages belong to (ERC).
What is a lifetime lump-sum mortgage?
A lump sum lifetime mortgage means that you will receive your entire lump sum amount all at once, rather than in instalments. This is ideal if you have a large project, such as a home upgrade, or if you want to use equity release to buy or sell a second property. This enables you to borrow the maximum amount in a single, one-time payment. The monies you release are tax-free and fully yours to spend however you see fit. Interest rates are competitive and fixed for the life of the loan.
You can get your money immediately and at no expense to yourself or the source. Drawdown plans provide you more freedom in terms of when and how much money you can withdraw. You will only owe interest on monies received, not on the amount assisted by the provider. Drawdown mortgages allow you to keep your entire property worth, which means that if the value of your property rises, you will still profit.
What exactly is a lifetime drawdown mortgage?
A drawdown lifetime mortgage is a sort of equity release that allows you to receive your money in periodic instalments rather than one large lump amount. One of the main reasons people pick an equity release drawdown plan is that it allows them to avoid exceeding any means-tested benefit levels while still allowing them to receive benefits.
What exactly is a lifetime interest-only mortgage?
An interest-only lifetime mortgage is a sort of equity release in which you only have to pay back the interest on the loan, not the principal. This can be beneficial for folks who are unable to make monthly repayments. If you have a sizable excess of income and would want to pay enough to cover the interest on your lifetime mortgage rather than letting it roll over, this type of plan may be one of the greatest methods to preserve as much equity in your house as possible while also maximising the inheritance you leave. Because they function similarly to standard mortgages, these programmes are popular among retirees who are unable to obtain a traditional mortgage.
What exactly is a home reversion strategy?
A home reversion plan is a sort of equity release programme in which you sell all or part of your house to a provider of equity release in exchange for a lump sum or recurring payments. You will then have the right to live in your home rent-free for the rest of your life. When the plan expires, the provider will sell your home and pay you the proceeds. You can live in your property indefinitely without having to worry about rent or mortgage payments. The lump sum payment you get may be tax-free. If the value of your property rises, you will profit from the rise.
What is the most optimal equity release strategy for me?
The ideal equity release strategy for you will be determined by your unique circumstances. You should think about…
- How much money do you mandate
- You can choose between a flat sum and recurring instalments
- Your age and health status
- Your property’s worth
Read More: What Is an Auto Equity Loan and Why Should You Get One?
