A Guide to Equity Release Schemes

You may need to tap into your wealth or equity built up in your home, should you have to deal with essential expenses like medical bills, college expenses for your children or repairs on your home. There are equity release plans for the purpose. You may avail of the schemes to increase your income. However, it is crucial to deliberate on the issue because the plans may not suit everyone.

Types of Schemes

You may release your equity in the home in two ways. A lifetime mortgage is a plan that permits you to borrow funds against your home. A second arrangement, called a home reversion involves the selling of a portion of your home.

Lifetime Mortgage

In a lifetime mortgage, you borrow a quantity from a lender that is a percentage of the total worth of the home. The amount can be equal or less than your stake in the property. The lender charges an interest on the sum. You do not have to pay back until you dispose of your home. Your debt would become four times of your loan in approximately twenty years, at the prevailing rates.

Home Reversion Scheme

Several providers make available home reversion schemes. You may sell a share of your home to a provider at a cost that is less than the market worth of the share. You retain the right to reside in the property for the remaining years of your life. If you die or you wish to dispose of the property, the provider gets a price that is equal to the cost of the share you sold in the scheme.

For instance, if you sold 30% of your home to a home reversion provider, the latter could collect the 30% when you decide to dispose of the property. Your heirs or you may get the remaining value.

Some Considerations

Though equity release schemes allow you to stay in your property, they are undeniably expensive. The interest rates for lifetime mortgages are very high in spite of the fall in the base rate offered by the Bank of England. This raises your debts to a high value until you decide to sell your home. The home reversion policy requires you to sell a certain portion of your stake but allows you funds that are less than the current worth of the share. People with serious health issues could get more favourable terms for the schemes.

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