Equity release is a secured loan obtained against a property like any other residential mortgage; however, the main difference is that you are not required to make any monthly repayments of the capital loan sum. Security of tenure is therefore an important consideration for any applicant. This reassurance is provided by the industry trade body known as SHIP or the Safe Home Income Plans. You have multiple options with equity release such as drawdown equity release, lifetime mortgage, interest only lifetime mortgage, enhanced lifetime mortgage and home reversion.
The lifetime mortgage is one of the most common equity release schemes that provide homeowners a choice in retirement. One of these options is the drawdown equity release scheme which is a flexible lifetime mortgage scheme. It has also been recognised as one of the cheapest schemes too. The advantage of a drawdown release scheme is that you are provided with the option of reserving the lump sum amount which you can draw down in smaller amounts for future use thus allowing you to always have money available for when you need it the most.
Another great advantage of the drawdown equity release scheme is that interest is only charged on the withdrawn amount thus protecting inheritance. In most cases, fixed interest rates are offered by drawdown release providers and money can be saved on compound interest.
Other forms of lifetime mortgages charge compound interest which is simply interest charged on interest. Eventually, homeowners need to pay tens of thousands of pounds only for interest. It is not that drawdown mortgages do not have compounding interest. The savings is in the sum you take out to use versus the interest charged on the entire amount of equity made available to you. A lot of money can be saved by opting for drawdown release schemes, where you pay interest only as money is taken out and used.
When it comes to drawdown equity release schemes, older home owners are allowed to borrow more than younger homeowners. The actual percentage of the value of the home that can be borrowed however relies on the provider. Each provider has different lending criteria which is why it is necessary for an equity release adviser to be consulted so that you can determine the most appropriate drawdown release provider. You will also need an equity release solicitor to verify identity to meet money laundering requirements.
The amounts drawn out from a drawdown release scheme can be used for any purpose. One of the best ways to use capital from equity release is to purchase insurance – home insurance, car insurance, or health insurance. This puts the money to good use and it ensures the money is not wasted.
Some homeowners elect to use their equity release funds on holidays or to purchase items they have always wanted, but could not afford during their working years. While this is fun and entertaining it can lead to some troubling consequences since it puts someone’s inheritance in jeopardy. It is all a matter of perspective and what you feel most comfortable with when you use this money for insurance products, home repairs, emergencies, or for everyday life.
The drawdown lifetime mortgage option is just one of several to use. Home reversion might seem more appropriate once you take a look at the full list of benefits and disadvantages drawdown schemes have. On the other hand you might prefer an interest only mortgage where you make monthly payments on your equity release plan. The reason there are numerous products is to ensure there is something for everyone.
Before you consider taking out this type of mortgage speak with your family members. This is important once you have spoken with a financial adviser. Your family who will be responsible for making sure your debts are paid will want to know what they may face upon your death or need for a long term care location.
The market can also change with regards to inflation and interest rates, which can put a damper on the funds you have available for your retirement. If drawdown equity release sounds like the right plan for you then fill out an application. As long as you are 55 years of age you can obtain a lifetime mortgage plan. For home reversion you need to be at least 65 years of age. There are certain plans that can also offer you more money in a lump sum if you have health concerns that lower your longevity that might be more applicable than the drawdown option.