Is An Equity Release Scheme Right For You?

Summary
It seems that every time you pick up a newspaper or turn on the television, you see smiling couples booking long haul holidays or making plans to alter their homes, having raised funds by “ releasing the equity in their home”

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Life Insurance News

Most, but not all, equity release schemes are aimed at the over 55 group. Schemes are basically divided into 2 types – Home reversion and Lifetime mortgage schemes.

With these, the provider will buy a proportion of your house, but at less than the market value. They then retain this “slice” until you decide to move house, to go into perhaps long term care or a retirement home, or you die. It works well as long as house prices continue to rise, but if price remain static, or worse, start to fall, you may find yourself in a “negative equity” trap, which may restrict your options considerably if you decide to move.

With these schemes, the provider will lend, on average, between 20 and 50 per cent of the value of your property at a fixed rate of between 6 –7 per cent. Different providers may vary slightly to this, depending on factors such as your age.

You will pay nothing back on these schemes until you want to move house, maybe need go into long-term care, or die. In a market where house prices are falling, this can mean your debt starts to increase and again, you have insufficient equity left to allow you to do other things, such as home improvements or repairs, or to move house.

Any form of equity release scheme can make a difference to other aspects of your finances. You may not be eligible for certain state benefits, or they may be reduced If you have any other income for example, a private or works pension, or income from savings, you may have to pay more income tax.

The younger you are when you take out these schemes the riskier it is. You may be able to find a scheme that has low fees for the first few years, or one that carries no early repayment penalties. Check if your policy gives you the flexibility to downsize (you may need to move to a bungalow or ground floor flat in the future) or even to go into a care home.

Another option to consider is whether you would benefit from a “drawdown” scheme, which would mean you could reduce the interest you pay over the term by only taking a portion of your money as and when you needed it, for example to buy a car, or do home improvements – or even for that dream holiday! For extra stability in your financial plans, always go for a fixed interest lifetime mortgage plan, so your payments will stay the same throughout the term.

The trade body for the equity release scheme industry is SHIP – Safe Home Income Plans. Always check that any provider whose scheme you are considering is a member of this body. Their stated code of practice will ensure that you will never owe more than your property is worth.. This is called a no negative equity” guarantee and will help to safeguard you ,and your future financial security .