Equity Release: A Brief Overview
There can be instances when you need to release the equity of your home. Perhaps you have entered into difficult financial times. You may instead require this liquid capital to fund the education of a young one. In either case, equity programmes can provide a welcome source of funding. Still, there are many individuals who may not be entirely certain how these schemes work and the metrics to take into account. It is therefore a great idea to take a look at the basic principles behind the average equity release scheme and some major providers throughout the United Kingdom. We will also address some frequently asked questions. You may be surprised at what you will learn!
The Principles Behind an Equity Release Programme
The basic concept associated with an equity release scheme involves enabling the property owner to “tap” into the accumulated equity of his or her home. These method are normally reserved for older individuals who may have neither the ability nor the credit to take out what would be considered a standard mortgage (or second mortgage). There are two variants to choose from which we will examine below.
These are by far the most ubiquitous type of equity release plan. In essence, the owner is able to procure a lump sum based upon the value of the property, regular monthly payments or a combination of these two options. It is important to note that most companies will stipulate a minimum age of 55 years. The main benefit with this approach is that monthly repayments are normally not required. On the contrary, the balance will be settled in the event of the death of the policyholder or if he or she is admitted into a long-term care facility.
Home Reversion Schemes
This is the second variant of equity release. In essence, the owner will sell a fraction of his or her home to a provider. This company will then offer a lump sum or regular financial payments which are the equivalent of the worth of this percentage. Assuming that the property is eventually sold, ONLY the portion of the proceeds which were not owned by the third party will be offered. An example can be if an individual decides to “loan” 30 per cent of the property to an equity release provider. This same person is therefore only entitled to 70 per cent of the total value of the property.
The Top Providers
One of the quandaries which can be faced by many applicants is knowing which company offers the best services. Some of the best equity release lenders in the business are:
- Legal & General Home Finance (4.7% fixed rates, loans for up to 2 million pounds)
- Liverpool Victoria (up to 10,000 pounds as a cash lump sum)
- Hodge Lifetime (5.2% for a fixed mortgage and as much as 750,000 pounds as a lump sum)
- More 2 Life (an annual rate of 5.51% and a maximum lump sum of 500,000 pounds)
- JustRetirement (6.04% annual rate of return and up to 750,000 pounds in a lump-sum payment).
These are some of the basic principles in regards to typical equity release plans. It is always best to consult with a trained professional if you have any additional questions.