The world of finance can become increasingly difficult to navigate, especially as a couple or individual grows older. With age often comes significant financial and family decisions, one of these decisions often revolves around the idea of taking part in an equity release scheme. There are several schemes available, all of which require careful thought and consideration in determining, which if any, is right for the specific case at hand. For this purpose you will want to discover the best equity release schemes for your current situation.
Home equity release from EquityReleases.com allows a homeowner to earn income off of the equity that has already been invested in their home. This is often perfect for seniors who are looking for a larger monthly income or cash flow. Many seniors decide to take part in a home equity release scheme so that they can spend their retirement more comfortably, or so they can help their children in some way.
There are currently two main types of equity release schemes. These are home reversion plans and lifetime mortgages. With a home reversion plan, the homeowner sells part or all of their property. In return they receive a lump sum of money with which to live and they are allowed to stay in the property for the remainder of their lifetime without having to pay any rent. With a lifetime mortgage arrangement, the homeowner takes out a loan against the value of their property. They then can choose whether or not they want to make monthly payments on the interest incurred.
The best equity release schemes vary with each family, couple, or individual. Most seniors must consider several factors when deciding on the perfect scheme. One factor that is often considered is that of the well-being of their children, both presently and in the future.
It is important for parents to take into account what will happen with their home once they have passed away or relinquished their property to the home equity release scheme. By taking part in a scheme, most homeowners are exhausting the potential to pass equity on to their loved ones. On the other hand, by having more cash on hand in the present day, many seniors are able to help their children through the recession or may even be able to help them purchase their own home.
To help you decide on the best equity release schemes for you and your situation, it is important to have more details than those in the introduction.
Details for Equity Release
One of the main differences between home reversion and lifetime mortgage is the age difference. You need to be at least 65 to take out a home reversion plan, but lifetime mortgages can start a decade earlier.
Since there is an issue of leaving behind an inheritance you will want to look at home reversion and interest only lifetime mortgage. Comparing these two products will show you the potential choices that will allow for inheritance to be left more so than any other option on the market.
For example drawdown mortgages (found here) are a lifetime mortgage option where you can take out a lump sum from the provider and then withdraw instalments as you need them. You only pay interest on the amount you withdraw. The interest is compounded onto your account until you pay back the loan. Since it adds up and you could live longer than expected you may end up spending the inheritance you meant to leave behind.
Enhanced lifetime mortgages are a specialty product. They do not work for everyone and in fact cannot be called the best equity release schemes. It is for a person that may have an illness or disorder. There may be something like smoking, obesity, diabetes, cancer, or another type of issue that could decrease your living to a very old age. If there is you could get a larger lump sum of money from an equity release scheme.
As you can see there are definitely different options available to you. It is up to you to choose what you feel is going to be the better choice. You also want to speak with your family to assure yourself they understand what is going on. Your family may prefer a different option. They may want to help you out. On the other hand they may think it is the greatest idea.
Regardless of the path chosen, or the best equity release schemes picked, it is crucial that homeowners do sufficient and extensive research into which scheme is best for them and their financial situation.
The world of finance can become increasingly difficult to navigate, especially as a couple or individual grows older. With age often comes significant financial and family decisions, one of these decisions often revolves around the idea of taking part in an equity release scheme. There are several schemes available, all of which require careful thought and consideration in determining, which if any, is right for the specific case at hand. For this purpose you will want to discover the best equity release schemes for your current situation.
Many a time, people get to their retirement age straddled by debts stretching from loans, credit cards and other regular financial commitments. It is always distressing because this is a time when you fear these debts will eat into your pension and you will have less income to meet these liabilities. After retirement, the best thing you can do is to relax and enjoy life without any financial stress because life already may have been hard work in even reaching retirement age, so the last thing you wish for is the stress to continue. You have options like debt consolidation and equity release schemes.
If by chance you happen to be crushed by bad debts, the good news is that there are debt consolidation options from a number of sources. You can consider equity release schemes which enable you to enjoy a life without financial worries & further monthly repayments. Having attained a minimum age of 55 years and above and owning a valuable property, you can use the option of taking out an equity release plan to secure finance in order to repay these debts once and for all. Whatever plan you choose, you must ensure that you do it carefully because of the different characteristics that they exhibit.
Acquiring funding through equity release can be a great way to relieve you of your debts because the same loan will be used to offset other outstanding credit cards etc. If your home is highly valued, there is no doubt you may still have more money left to spend into your retirement without worrying about losing pension. It all depends on how much equity you can release. This will depend on your age at the time and the surveyors report on the condition and value of the property.
Unless your debt is too high, the amount taken as lump sum will be enough to alleviate your financial woes. There are repercussions however; your inheritance plans will be hampered unless you have other plans to settle beneficiaries in other ways. The home equity loan plan is only suited for persons who possess their own property and they may use the money to develop the other assets for their own benefit.
Equity release is not the only way to debt consolidation. There are other ways which are applicable for example persons who are far away from attaining the age of securing an equity release. Financial advisors are available to give relevant advice based on income and the nature of debts owed. They will always come up with a financial solution tailored to your particular situation, needs and wants.
Loans can be attained that you make monthly payments on. These loans may not have collateral, but they will definitely use your pension. If you do not have enough pension to pay your daily living then something like a personal consolidation loan is going to create more problems than they solve.
As you consider the variety of options open to you, consider what is best. Speak with your family. Your family should be a part of a major financial decision that could affect them after you pass on or move to a retirement home. At the very least your family might lose their inheritance if you make the wrong choice. If you do not ensure there is some protection they may be responsible for your debt.
Lifetime mortgage schemes can come with a negative equity clause. This clause protects your family from owing money if the home value is lower than the amount you owe on the loan. It might not save the inheritance, but it does save from more burdens.
Home reversion is another choice. Home reversion is the sale of your home. With that money you could pay off your debts. You might not own your home anymore, but you also do not need debt consolidation. You are paying off the debts you have by the money you receive. This only works if you have enough value in your home to live on and pay off the debts.
Make certain you speak with a financial adviser before you make the ultimate decision on what you wish to do for your debts. An expert in financial markets should have an understanding of equity releases and debt consolidation. They should be able to help you understand some of the benefits and disadvantages you might face. You certainly do not want to end up owing more as you are about to enter a retirement home. The only option at this point would be a life insurance policy that can pay the debt after you are gone.
For further independent financial advice visit - www.EquityReleaseAdvice.com
People who are considering equity release can choose from three main equity release schemes. These include the lifetime mortgage, the interest only lifetime mortgage and the home reversion plan. In order to determine which equity release plan is the right one for you, you need to know the difference between each plan.
The home reversion plan allows homeowners to sell all or a part of their home to a home reversion company at a discounted price. This price is normally between 20 – 60% of the current market value of the property. By signing a document called a lifetime lease, you will be legally allowed to remain in the property until your death or the death of your spouse. During this time, you will not be required to pay rent but you will still be responsible for taking care of the property and making sure it remains in good condition.
Once you die, your property will be sold and the home reversion company will receive its share. If you sold all of the property, all of the sales proceeds will go to the home reversion company. If you sold only a percentage of the property, the home reversion company will receive only a percentage of the sales proceeds.
Lifetime mortgages do not involve the selling of the property. Instead, you are allowed to use the property to obtain a loan which requires repayments only if you or your spouse dies. Most lifetime mortgages with the exception of interest only lifetime mortgages accumulate the interests which are repaid once the property is sold. In most cases, the interest charges are compound interest which simply means that you will be paying interest on top of interest. You will remain the owner of your property until your death and will be allowed to live in your property as long as you like. Most lifetime mortgages offer what is known as a no negative equity guarantee which simply means that the amount borrowed and the accumulated interest can never exceed the value of the property which means that you will never have to repay more than what you have.
The interest only lifetime mortgage is similar to other lifetime mortgages with the exception that you are required to make monthly repayments of the interest amount. This means that eventually only the amount borrowed will have to be repaid. Interest payments will continue for the life of the loan. This is because the principle will always remain outstanding until you sell the house or if you die in which case the house is sold so the payment can be made.
Which equity release plan you are interested in will determine what a financial adviser will talk to you about. You should always ask about the different products and what might be new to the market. For example enhanced lifetime mortgages are newer than all others.
This enhanced mortgage is meant for those who have an illness that could affect your life expectancy. You are able to get a larger lump sum because of this.
Besides the regular lifetime mortgage, interest only, and enhanced special mortgage, you have a drawdown mortgage option. The drawdown mortgage does not give you a lump sum and end the payments. Instead, you get a smaller lump sum and then you can take instalments.
The instalments you take are up to you. As long as you do not take the full amount available to you then you will not pay interest on it. You see you only pay interest on the amount of money you actually use. This can save you from using all the equity in your home and perhaps keep something for your beneficiaries.
There are only two plans that truly guarantee a lump sum for your beneficiaries. The interest only loan because you take out only a portion of money from the equity and not the full amount. You make payments keeping the principle from ballooning unlike it can with the regular lifetime mortgage options. Home reversion is the other option that nearly guarantees your family inheritance. This is because you do not have to sell the entire home, but a portion of it. The cash is also yours and not from a loan.
Each equity release plan vary which means that you will need to do sufficient research to make sure that you fully understand the details of each plan to pick which equity release plan is best for you. If you want to be sure that you are choosing the best plan, you may want to hire an independent financial adviser or visit www.EquityReview.com for free professional advice.
Equity release is a term that retired homeowners who are in need of an additional source of income, or capital should be aware of. Retired homeowners are now given the opportunity by equity release providers to release equity from their homes. Homeowners who are interested in equity release can choose from a number of products now on the market. The question becomes how to ascertain which will be the best equity release schemes for your individual need.
A homeowner who does not want to sell his home can choose a lifetime mortgage which allows them to obtain a home equity loan from an equity release provider by using his home as collateral. In order to be eligible for a lifetime mortgage, the homeowner must be of a certain age. In most cases, they must be older than fifty-five years of age. They must also be the owner of a property that is worth at least seventy thousand pounds. Homeowners are never allowed to borrow more than the value of their property. They are also not allowed to borrow an amount that is equivalent to their property’s worth. The reason for this is simple - inheritance.
There is also the need for profit on the behalf of the provider. If you borrow what the home is worth, then there is a potential for the interest to exceed what the home is worth. Since you make no payments it generally puts no profit in for the provider.
In order for a lifetime mortgage to be repaid, the property will have to be sold. This normally happens when the homeowner dies or is no longer capable of remaining in the property. If the amount borrowed is higher than the value of the property, the sales proceeds from selling the property will not be sufficient to repay the equity release provider. The amount borrowed cannot be the same as the value of the property because of compounding interest. The sales proceeds from the property are not only used to repay the loan but it is also used to pay the accumulated interest. This does not apply to an interest only lifetime mortgage as the balance remains the same.
The difference between an interest only lifetime mortgage and a lifetime mortgage is that the interest only lifetime mortgage allows the homeowner to pay the interest amounts on a monthly basis. This means that the sale proceeds from the property will only be needed to repay the initial loan sum which means that the amount remaining can be left as an inheritance for the children of the homeowner.
There are four lifetime mortgage choices available to you today. These can change as the market changes. You know of the main lifetime mortgage and interest only option. A third is the drawdown mortgage. This gives you a lump sum in a smaller amount and then instalments for the rest of your life as needed. You pay interest only on the amount you remove from your equity account. It can help you save a little money for family and at least the interest does not add up as fast as some of the other schemes.
Home reversion plans are also common among retired homeowners. In exchange for an additional source of income during their retirement, they sell a part or all of their property. They are however allowed to remain in their property until they die or move out. Home reversion plans are not as common these days as the guilt of selling part of your house to the reversion provide casts a shadow over taking one of these schemes out.
For home reversion plans you need to be 65 years of age. You can always sell your home in parts when you go with this option. For example if you sell a small part at age 65, you could sell another in ten years when you need more money. This at least provides you with options. It also determines the amount of inheritance you leave. Since you do not have to sell the entire home, you could leave inheritance behind.
As you look for best equity release schemes, you need to compare the different products. After all if you are comparing products and providers you can find the best one for you. Sometimes you might find a product that looks right for you but it turns out to be less than you hoped for after talking with a financial adviser. You certainly do not want to feel guilt from making the wrong decision, so keep your family apprised of your choices and speak with a financial adviser which can be found at EquityReleaseHome.com.
For many people, an equity release mortgage is a good solution to cash flow issues later in life. This kind of financial scheme allows you to stake your valuable assets – such as your property – to secure a loan, and to retain use of these in your everyday life as well. It is a financial scheme with a lot of legal jargon and concerns. Before taking out an equity release mortgage you want to make sure you have a solicitor in your corner. Solicitors who are members of ERSA should be compared to find the one that will be most helpful to you.
There are several varieties of equity release schemes; some involve simply taking out a loan, while in others, the third party actually buys your property from you and delivers payments in small chunks that are deposited monthly and which become your regular income.
If you are keen to take on this kind of scheme, you will want to ensure that you have plenty of advice and support in order to make sure that you avoid hidden costs and get the best possible deal. Solicitors who are members of ERSA will be able to help you here.
This kind of legal professional specialises in equity release law. As a result, he or she will be able to point out all the costs to you, and to assess your situation accurately in order to recommend the best product for your requirements.
Exploring Equity Release Schemes for Costs
Your first decision will need to be what type of equity release scheme fits your needs. Without an understanding of the products available it will be difficult to discuss the costs you may incur.
You have home reversion which is not a mortgage but a sale of your home. You must own your home in full and be 65 years of age. You sell the entire home or just a portion of it as a means of getting money for your retirement. There are no repayments necessary in this scheme and no interest to accrue. This is because the money is yours for the sale. Home reversion is a tax free option; therefore, you do not need to worry about capital gains tax from the home sale. However, there are solicitor fees, provider fees, underwriting fees, and closing costs associated with home reversion plans.
Lifetime mortgages are provided in four different products in the UK. The market can change and products have been known to come and go. Right now you have roll-up, drawdown, interest-only, and enhanced lifetime mortgages available to you. Each has its own unique options for payments, repayments and compounding interest which can determine some of the fees you will see.
First lifetime mortgages are loans. You will see closing costs, underwriting fees, provider fees, and solicitor fees. These costs are generally required upfront; however, select providers will include the fees into your loan for repayment later or at the end of your mortgage term. Interest-only lifetime mortgage is the only loan in which you can make monthly payments, reducing the amount owed at the end of the mortgage agreement. The end of the agreement is usually at your death or on the sale of your home when you decide to move into a nursing home or other care facility.
Like home reversion, lifetime mortgages offer tax free money when you take out the loan. This saves you from capital gains taxes whether you use a lump sum or drawdown scheme in which you take money as you need it.
Hidden fees have been known to be applied by some providers that are less than reputable. It is imperative that you look for a member of the SHIP (Safe Home Income Plans) programme. Members of this organisation are highly regulated.
Additionally you want a negative equity clause in your equity release mortgage contract. This will help your beneficiaries and family avoid unforeseen charges. Home values change, sometimes lowering. They could lower enough on your home that even with the sale your home does not pay the entire lifetime mortgage amount with interest. A negative equity clause ensures your family does not have to pay the difference. It is a good idea to speak with your family before you enter into an agreement too.
Equity release schemes are useful; however, they can also be fraught with hidden expenses. In order to help you to make sure that you navigate these successfully, it is a good idea to hire legal professionals such as solicitors who are members of ERSA with specialist knowledge of this field.
The definition of 'Equity' is the value of the home minus any outstanding charges or mortgages secured against the property. The equity you retain in your home is often considered to be tied up and constrained, in the sense it is unavailable to utilise. When you need to know ‘how much can I borrow’ remember that it is dependent on the market and your homeownership situation. The theory for many homeowners is that you are unable to access it without selling your property.
Using an equity release scheme, an individual can unlock some of this equity in order to gain a lump sum of money or ongoing financial income from their property. Equity mortgages are available to anyone as long as you want to pay a monthly payment that pays for the compounding interest and principle balance, until it is all paid for. However, what can you do when you are in retirement and still need money, but lack the means to pay monthly payments?
If you are reaching retirement age or even in retirement age and you are thinking about ways to improve your financial standing, or perhaps would benefit from a large lump sum of money, then you may ask yourself how much can I borrow from a lifetime mortgage or home reversion equity release scheme?
The answer to this scenario is by using the latest online equity release tools which are now provided for the benefit of potential equity release customers. The good news is there are solutions even for those in retirement or aged 55 plus. The feature of many newer equity release websites is the provision of an online equity release calculator which answers the question directly as to how much can I borrow from my property. The calculation process should be straight forward and provide the figure for the maximum equity release availability in the market. Look for a lifetime mortgage calculator if home reversion schemes are not suitable for you.
Better lifetime mortgage calculators from companies such as Compare Equity Release.com will also offer results for an enhanced lifetime mortgage. These schemes will offer bigger lump sums due to medical underwriting due to the applicant(s) having ill-health. Additionally, Compare Equity Release.com has a further interest only lifetime mortgage calculator. This is helpful should you not wish for the interest to roll-up and are quite happy to make monthly payments of interest only. The answer therefore is to shop around in terms of how much can I borrow.
The great thing about these equity release calculators is that you can find out how much equity you would be able to release from your home without actually signing any contracts or taking on any commitment. They should be free to use and you should not have to give too many personal details in order to reach a conclusion. The whole concept of these calculators is to provide a ball-park figure as to the maximum equity release.
Each company is different with the amount they are willing to offer you in a retirement equity release scheme. Some companies will only supply 20% to 44% of your home equity in a lifetime mortgage, whereas others might offer up to 70%. It is dependent on a number of factors such as your health, age, and home value. If there is a potential for your home value to increase and your health is not offering a long life expectancy you may see a higher lump sum provided under the enhanced equity release scheme.
For lifetime mortgages you can be 55 plus, as long as you are not beyond 80 years of age (according to most providers). Home reversion where you sell a bit of your home for money requires you to be 65 plus. You also have to sell the rest of your home when you move or your family will after your death. Home reversion does not have interest, monthly payment, or any repayment which can be more affordable for some retirees. You and your family should consult the equity release calculators to determine the scheme that is most beneficial and payment friendly.
If you are currently reviewing which is the best equity release schemes then it is advisable to use such an online equity release mortgage calculator to gauge both your eligibility and also how much can I borrow and benefit from. This knowledge, combined with professional and independent financial advice, will help make the equity release decision process easier. Call 0800 678 5169 to speak to an equity release adviser.
Safe Home Income Plans (SHIP) are one way of protecting equity release customers. The SHIP code of conduct means that any organisation that works with SHIP in offering equity release schemes must abide by a series of rules which ultimately protect equity release customers. Therefore for any individual or couple who are considering committing to an equity release scheme, it is important they deal with scheme providers who abide by these rules.
Equity release allows people to access some of the equity within their homes without having to sell their property. This is ideal for retired people who wish to have access to some of their equity and yet retain their own property.
A key part of the SHIP rules state that home owners must have a lifetime residence guarantee for their property. This gives the customer the peace of mind that they will always have a roof over their heads.
This rule works in two ways and is based on the equity release plan the homeowner takes out. A home reversion is a sale of part of or your entire home. Typically when a house is sold you move out. Under home reversion you are given a lifetime tenancy agreement which includes any person living in your home that is named in the home reversion contract.
Unfortunately anyone not 65 or older living in the home may not be included. A person that is still young such as children you have living with you will not be included either. The good news is the tenancy agreement requires no rental payment. You live rent free until you decide to move to a nursing home/care facility or upon your death.
For lifetime mortgage releases the SHIP code of conduct ensures you can remain in the home until you decide to move or your death occurs. It means even if there is a negative equity situation or you live beyond your life expectancy the provider cannot demand you move out, sell the home and repay the mortgage. Only if there is a clause in the contract stating a specific period of time like 5 years on the mortgage for repayment will you need to find the funds to repay the mortgage or sell the property. At this point any value in the home that is left can be used to move to a new location or into a care facility.
The criteria laid down by SHIP also stipulate that providers must be completely open, clear and honest about their contracts. The contract must allow the home owner to change property to another suitable property without any financial penalty being imposed.
This does not mean penalties do not exist in the contract. SHIP does allow for early repayment penalties. If you pay off the loan within a certain period of time you may have to pay a penalty along with the amount owed. If you transfer the mortgage to a new property this avoids the penalty fee.
Perhaps the most important part of the SHIP Code of Conduct in the current depressing housing market is that customers are protected by a 'no negative equity' guarantee which means that even if the property price slumps, a customer can never owe more than the value of the home.
Negative equity is certainly a worry after the end of the noughties and the beginning of the new decade. The UK saw two recessions which have only started improving recently in reference to the housing market. Quite a few areas are still in a negative equity situation with their homes. Since you have a protective clause on your house, you can feel certain your family will not have added pressures to make a payment to the equity release provider.
Disadvantage of Equity Release
A main disadvantage to the equity release concept is inheritance. While you can be assured of no penalties for moving to a new property, a negative equity clause, and money to live out your retirement, there are issues with leaving cash behind for your relatives and friends. When the home has to be sold to cover the mortgage and there is a negative equity situation, your family receives nothing. If the family cannot pay the loan with other funds but there is no issue of negative equity then they can at least gain a little cash. Unfortunately most schemes mean the family home is sold.
If you are considering an equity release scheme it is advisable to select one which adheres to the SHIP Code of Conduct - These schemes can be accessable here.
Should Life Insurance be taken out to protect the Halifax Retirement Home Plan or any other Interest Only Lifetime Mortgage?
As with any financial commitment, major consideration must always be given to the longevity of the loan, particularly in the case of interest only mortgages for pensioners such as the Halifax Retirement Home Plan. Due to the nature of these plans, the interest only mortgage repayments are set to potentially run beyond the normal 25 year term of a conventional mortgage. Especially given the ages involved here and consideration of the deceased’s family, more thought should be placed upon mortgage protection as health issues are more likely to be prevalent.
However, as with most, there is no insistence placed by the Halifax Retirement Home Plan or from the remaining lifetime mortgage providers that any life cover be taken out. Nevertheless, common sense should prevail and in conjunction with your experienced financial adviser an overall strategy should be put in place. The Halifax Retirement Home Plan is no exception to this rule.
Should a person die on a jointly held mortgage, then the surviving partner still has the interest only mortgage to pay. If they are reliant on their partner’s pensions then this could cause much heartache emotionally and financially, even more so given their long term partner is now deceased.
The Halifax Retirement Home Plan still functions like a normal mortgage. As such, the monthly payments must be maintained otherwise the standard procedures for repossession could be enforced by the lifetime mortgage lender. Herein lies the danger.
But, before applying for a life assurance scheme, questions should initially be asked regarding the financial outcome should you or your partner die: -
Is one of you the main pension income recipient?
If so, how would the survivor manage financially on their remaining income alone?
Will they be in receipt of a percentage of their partner’s pension if widowís benefits were included? Would they want to stay in the current residence or would they need to downsize to a more manageable property should either person die?
Answering Pertinent Questions
Depending on your answers to the above questions you may find that an assurance policy is not enough to cover the situation you are considering with the Halifax Retirement Home Plan. The interest-only portion of this plan requires monthly payments to be maintained and even with an assurance plan there may not be enough left to cover the person’s expenses after the main pensioner is gone.
Assurance plans need to cover any outstanding debt enabling the person left behind to survive on any retirement income they are able to receive. There is a case in which downsizing and selling the home is the best option for the remaining pensioner. It can be heartbreaking especially if the deceased maintained the property as a family home over several generations.
These little questions and your answers have to be used to determine your most affordable option well before you enter into a retirement plan that is also covered with an assurance policy.
Other Choices for Retirement
While lifetime mortgages are not an option, if you will end up selling the house in the future you may elect for a home reversion plan. In this situation you live in your home rent free until all parties named in the contract die or move to a care facility. This means a married couple over 65 years of age can sell a part or all of their home, to gain retirement funds. You obtain the funds you need to live on, but you have no repayment at the end. There again it does not work for everyone, especially if you want to try to save your home from being sold.
In the event you wish to keep your home, then you need to consider if a term or whole life assurance policy is your best option. A whole life policy has greater monthly payment amounts, but they are fixed to ensure you have the funds you require after the person named becomes deceased. A term policy is for a set period, so it could expire before using it. However, it is the most affordable option.
Your lifetime mortgage adviser should broach these kinds of issues with you to help you think about the different situations you may face. All these scenarios require careful consideration, not only with your partner, but we would suggest the children or beneficiaries should also have an input here. Everyone is going to be affected when the person named in the policy becomes deceased. This is why speaking with financial advisers and your family is imperative before you make a decision.
Benefits of life cover for interest-only lifetime mortgages exist. It would mainly provide peace of mind, knowing that should the worst happen the mortgage can be repaid in full and thereafter NO monthly mortgage payments are required. The interest only mortgage lenders will let the surviving partner remain in the home for the rest of their life; this is part of the terms and conditions. Therefore, your tenancy cannot be curtailed, nor can you have your house repossessed as long as the monthly mortgage payments are kept up.
The life cover premiums for the over 65’s pro rata will certainly be higher than those of younger applicants. However, given the loan sizes are usually much smaller then the overall cost is marginalised. The payments are usually fixed from inception which is similar to having a fixed rate on the mortgage, in that payments are guaranteed for the duration and you can budget accordingly.
What Types of Life Assurance Plans are Available?
The term of the plan is usually the key here as there are two options in the protection of an interest only lifetime mortgage. As the balance will remain level throughout, some form of protection whereby the life insurance also remains level throughout is therefore recommended.
The best advice in this situation would be to opt for a whole of life assurance policy. This will provide a level amount of life assurance for the rest of your life. Therefore, it has to eventually pay out, once the first person has died.
Post retirement, depending on the amount of life cover required, whole of life policies can prove expensive. You could have the option of a renewable whole of life plan where the cost is kept down initially, but would be subject to a review of premiums in the future. However, to maintain cover, the cost is likely to increase in the future. The other option on review would be to reduce the life cover but maintain the same premium.
A more cost effective proposal would be to consider a level term assurance plan. This wouldn’t be the ‘Rolls Royce’ solution, but could give a temporary reprieve at a time when finances won’t permit or a temporary measure is only required anyway. The level term assurance plan provides a level amount of life cover for a fixed term. As such the premiums are usually lower than the whole of life plan as they will cease at a pre-determined date in the future. There is no savings element; therefore, once the policy has expired there is no cash sum or money to be paid out.
Nevertheless, a term assurance policy does provide a cost effective means of protecting the interest only mortgage & should either party die during its term, then the lifetime mortgage will be repaid in full. This will leave the survivor with no mortgage balance and more importantly no further monthly payments to make to the lender.
As you may already notice there is a disadvantage to the term assurance policy in that someone named in the policy has to die for it to be accessed. When someone lives beyond the expiration date, this can put you back to a troubling situation with your interest-only lifetime mortgage plan.
It does not mean you are out of options. It is quite the opposite since you are in retirement. You can still convert a mortgage as long as you are under 75. This means you could change your interest-only lifetime mortgage to one without an expiration date like a roll-up or drawdown option. In this case interest accrues on the principle, but payment is not due until death. This can save you from having your home repossessed.
The second option is to speak with a home reversion provider or visit this website to see if you have enough value in your home to get the interest only lifetime mortgage principle paid off by selling a piece of your home. You may even have enough to get a lump sum for your retirement. It all depends on the home appraisal and the willingness of the company to offer a good percentage on value.
Assurance policies are certainly an important guarantee whether it is whole life or term to avoid having your home repossessed when a person named in the policy dies. It is worth paying on if you have the funds and wish to protect your home. It should not be your only consideration of course since you may out live the term or whole life policy.
After retirement, there are many adjustments individuals need to make to their lifestyle. Even though you may get a pension, the amount may not be sufficient enough to meet your monthly expenses. As the bills increase, the money you have seems to decrease. This is especially true given that in May 2011 the level of inflation ran higher than average pay increases. For retirement age individuals solutions do exist such as the Halifax Equity Release.
To overcome financial problems in your golden years, opting for roll-up equity release schemes or interest only lifetime mortgages such as the Halifax equity release scheme could be a wise decision. This particular equity release scheme offers a number of benefits to retired individuals. The size of the benefits can be assessed by use of an interest only mortgage calculator.
The Halifax equity release scheme is basically an interest-only lifetime loan. Your property is the guaranteed asset to the equity release loan provider. This will need to be assessed prior to completion. The condition and property type are an important factor.
With this scheme, you only need to pay the monthly interest. This is paid by direct debit on a date of your choice from your selected bank account. Once the property is eventually sold there is no need to make any further payments as the proceeds are primarily used to pay off the pensioner mortgage with the balance passing to the beneficiaries of choice.
Before you opt for an interest only mortgage, there are some eligibility criteria you need to fulfil. You should be above 65, however discretion is provided to people over 55 as long as they are fully retired and have a retirement income to support the proposed mortgage. Therefore, it is a pre requisite that both parties must be retired and must own their main residence.
With a Halifax lifetime mortgage scheme you can increase your income after retirement. As the money released from this plan is not taxable, you can spend it any way you want. This way, you can have peace of mind and enjoy your retirement without any financial worry. Always be aware though the potential effect any cash released could have on any means tested benefits.
While the Halifax equity release sounds great this does not mean it is without disadvantages. There are quite a few that could definitely affect you and your beneficiaries at a later date. While it is true you obtain tax free cash that is not subject to any capital gains taxation on your income taxes, you may use up quite a bit of this cash without a true means of paying it off.
The general consensus with equity release mortgages is that you will pay off the loan by selling your home. You may decide to do this as a means of downsizing. You may sell it to move to a long term care facility. Others remain in their home until death paying interest, but no principle. At death, the home is sold and any remaining funds that did not go to pay the principle balance are given to your beneficiaries. As you can see in any of these scenarios your home is sold.
There are no absolutes of course. Your beneficiaries may have funds to save the home from being sold. The downside is the funds need to be repaid right after death, whereas a sale of the home can take 12 to 18 months depending on the plan.
Always speak with your family about the equity release lifetime mortgage from Halifax before you sign the contracts. They may have a different solution to your retirement desires. They may also help to pay for some of the things you would dearly love to do and have waited to retire to enjoy. While you do have a solution in an interest only mortgage and other lifetime mortgages, you should always consider all the factors before making a decision whether you are on your own or not. Websites such as Lifetime Mortgage Advice provide essential information on all types of schemes and their pros and cons.
Seek the advice of a qualified equity release adviser who can ensure you receive the best advice and have the knowledge to make sure no existing means tested benefits would be affected. For the Halifax equity release scheme you can speak with a mortgage supermarket regulated by the FCA. It is not possible to speak directly with Halifax about their mortgage product as you need to have an intermediary explain the terms. It is imperative that you seek financial advice from an independent source for full understanding.
Paying off your mortgage before retirement may not always be the best idea.
People strive throughout their working lives in order to attain their main financial goal – to have their mortgage repaid before they reach retirement age. But what happens when you have to bring your interest only mortgage into retirement?
During one’s life, a mortgage will be the greatest financial outgoing expense each month and consequently is seen as a millstone around one’s neck. Hence, this is the reason to strive and eliminate this debt as soon as possible; the usual goal preferably before retirement.
According to the statistics, there are still approximately 12% of people carrying their interest only mortgage into retirement with a substantial average balance of almost £60,000!
Attitudes are changing. The mentality of the older generations that debt is bad has dwindled and people can now see how an interest only mortgage into retirement can actually assist their pensioner lifestyles. Particularly in 2013 with the Bank of England base rate at an unprecedented run at the lowest interest rate in history at 0.5%. Yes, retirement savers are suffering as a consequence, but the retirement borrowers are benefitting and using this situation to their advantage.
Therefore, having a retirement mortgage may not be so bad. Many people may have selected this option, rather than feel short of cash. Rather than a large mortgage, by keeping some semblance of borrowings into retirement, property owners can also use this mortgage to assist with estate planning and thus enabling mitigation of any potential inheritance tax (IHT) paid by their beneficiaries after they die.
This would involve totalling the assets; which would include the property and its contents, any savings/investments and then deducting the liabilities such as loans, credits cards and bills. If the mortgage is substantial, this will significantly impact on the net value of the estate and reduce any potential inheritance tax that may be due.
There is one way to get around inheritance tax and that is to pay any money to your children before you die. You can give little gifts well under the capital gains tax amount and gifting amount each year that would essentially take care of inheritance tax after your death. It is one way of making things a little positive in your retirement; especially, with an interest only mortgage into retirement.
Nevertheless, this may not be the only advantage. Another popular reason for carrying on with a mortgage into retirement could be that the home owner could use the additional capital to increase monthly income and pay for lifestyle improvements. Considering the alternatives and living your longest holiday in constant financial plight, this makes a sensible option. Particularly the case as the beneficiaries may only need to sell the property anyway to pay the potential inheritance bill after you die.
Popular reasons for raising extra funds can be improvements to the home, buying a car, caravan or holiday home to retire and relax with. In today’s environment of first time buyer’s difficulty in obtaining mortgages, then how useful could it be to gift money to children, even grandchildren now and enable them to get on the first rung of the housing ladder. It is possible with the interest only mortgage into retirement as well as a couple of other products in the lifetime mortgage industry.
The usual health warnings come with this. Any gifts made from one’s estate when over the inheritance tax threshold should be considered carefully. The seven year rule exists in that you need to survive this period after the date of the gift; otherwise it can still be included as part of the overall value of the estate.
The key to the interest only mortgage for your retirement period is making a payment on interest that accrues each month. The principle balance remains unpaid until the house is sold, but you make payments reducing the amount at the end. For some coming up with the monthly interest payment is not possible.
You have alternative lifetime mortgage options that can reduce your need for a monthly payment like the drawdown mortgage that offers a smaller lump sum and then withdrawals as you need them. By considering all alternatives you can decide if the interest only lifetime mortgage is the best product for you and your family during your retirement.
Therefore, taking an interest only mortgage into retirement has its advantages and disadvantages, however if one has the resources to fund the repayments, then they aren't such a bad concept after all. This kind of schemes aren't only restricted to those in the UK, residents in Northern Ireland can also equally apply for them, for more information on Northern Ireland residents looking to take an equity release out on their home click here.
Taking an interest only mortgage out may offer a cheaper way to purchase a property or even a remortgage of your current abode than with the conventional capital and repayment mortgage. The reason being is that borrowers are only paying off the interest charged and not the capital. Low cost endowment policies such as interest only mortgages can be beneficial for a certain type of homeowner. The trick is to use these products with an eye towards repayment rather than just existing. The following will look at certain aspects like calculations of these mortgages to help you better understand them.
An example of interest only mortgage calculations would be as follows - someone borrowing £150,000 at 5% interest rate over 25 years would cost them £624 per month on an interest only basis, and £878 per month on a capital and repayment mortgage. The difference in monthly payments is plain to see. But, you don't get something for nothing and this is what some interest only mortgage holders have found to their cost.
The eventual repayment of the mortgage at the end of the term on the interest only loan will have only paid off the interest charged which would still leave the original £150,000 outstanding. Additionally, this debt will still need to be repaid; hence, a means of savings should have commenced many years ago to counter this. In comparison to this, as long as payments have been met then a repayment mortgage would have guaranteed to clear the debt.
Interest only mortgages have been around many years and have been very common in the heyday of low cost endowment policies predominantly during the 1980’s which were sold as repayment vehicles alongside them - more info found here.
So, what's the problem with interest only mortgage deals?
Some time ago the regulators removed the requirements stipulating that if borrowers took out interest only mortgages then the lender would have to ensure a suitable repayment vehicle was taken at inception and that monthly premiums were maintained. This was in the shape of low cost endowment policies.
The lenders even took the bold steps of taking possession of the endowment policies and keeping them in safe custody with storage facilities provided. Additionally, the mortgagee would put a charge on the endowment policy itself so that encashment could not take place without the knowledge of the lender.
However, as poor performance of these endowments became evident from 2000 onwards the sale of these life assurance policies declined.
People then began gambling on future housing price increases with the hope of this being a repayment possibility over increasingly longer terms. People with interest only mortgage deals and with no repayment of capital can have the major risk in time of falling property prices. This will result in their debt being greater than the value of their home. This can be dangerous.
It can also be an issue at the time repayment is required. If someone does not have the funds then a house has to be sold or a new mortgage has to be attained. The person has to be in a good financial situation for this conversion to a traditional mortgage and wish to pay out more interest on the same principle balance. It is not a very comfortable position to be in.
When someone gets closer to retirement and is starting to see less income, there is added concern over being able to pay off their debts. The only hope someone has in this situation is to have an endowment policy or savings plan that will get better over time or to sell the property and get what they can out of it.
After Retirement Interest Only Lifetime Mortgages
There is another type of interest only mortgage to discuss that would also benefit from low cost endowment policies, but rarely sees them. The interest only lifetime mortgage is set up for retirees for anyone 55 or over. It is usually put into effect for the life of the person; however, the FCA has started regulating these tighter too thus many providers have switched to a time limit of 10 years or 75 in which repayment is due.
The best part about the lifetime mortgage is only paying interest, but knowing that until you and your spouse decide to sell or one or both of you dies you can live in the home. It is only at death that you usually have to repay the full amount, which does not have interest tacked on since you have been paying it. Still, consider low cost endowment policies as a means of saving the home from sale.
Interest only mortgages have now been in the spotlight with the UK property market for quite some time. This escalation in best interest only mortgages is particularly concerning as it commenced when people were borrowing increasingly excessive amounts. At the same time low cost endowments which were the traditional investment product sold as the repayment vehicle for an interest only mortgage was dying out. The timing could not have been worse.
Essentially, this resulted in many new borrowers drafting their main plan for mortgage repayment by relying on house prices to keep rising.
This is where the FCA intervened
Their mortgage market review and subsequent proposal forced lenders to have a much tougher stance on UK interest only. Lenders would now have evidence how they assess affordability by using interest only calculators. This would compare the cost to a repayment mortgage and then stress test the mortgage borrowers to ensure they could maintain the monthly payments. This could additionally be checked to see if affordability was an issue once they then revert to a standard variable rate and the mortgage interest rate increased to 2%.
This toughened approach has resulted in most mainstream mortgage lenders ceasing to offer an interest only mortgage unless a savings vehicle such as an ISA is established and evidence of monthly premiums paid. Lenders have also removed the ability of the mortgagor using the sale of property as the repayment vehicle or even an inheritance.
Under these tough conditions you may not want to seek out an interest only mortgage as the main means of purchasing a house. There are definite disadvantages that can be quite costly at the time of repayment. It is certainly a mortgage that requires discipline.
Retirement Interest Only Mortgages
You may wonder why if interest only mortgages are a dying breed there are still lifetime mortgages being touted online with an interest only option. The truth is mortgage lenders are even cracking down on these retirement mortgages too. Many providers have decided to put a 10 year cap on their product making it only available to someone who is 65 or older. They cap the borrowing age at 75, as well as make the product repayment due in 10 years. It means if you are 65 years of age you need to repay it at 75.
While the FCA did intervene for standard interest only products, the retirement product is still based on selling the house as a means of repayment. The idea in this mortgage is that you are beyond needing the house, need to downsize, or need a long term care facility. In this way it does not matter that you have to sell the house to repay the lifetime mortgage.
Since you can still pay the interest during the period you have the retirement mortgage, this leaves only the principle amount to be paid on the sale of the house. This is a specialty mortgage unlike the regular interest only mortgages for first-time homebuyers and the like.
It takes special consideration and a definite need to speak with a qualified lender to seek advice. You also want to gain independent advice from a financial broker to ensure you have the entire picture.
The FCA entered into a crackdown regarding all interest only mortgages because of scams and the ability of homeowners to repay the expensive product. Scams are usually more prevalent for people in retirement age.
Protecting You and Your Family
It is imperative that you protect your family with their inheritance. You cannot depend on your home retaining its value as we have seen in the recent years of subprime mortgage crashes. Housing prices can fall when inflation gets to be too much.
While it is a nice thought that interest only lifetime mortgages can help you during retirement, you also want to make certain your family is okay with you putting the family home in danger. They may be able to find a different solution to your retirement spending needs.
You may also wish to consider working beyond average retirement age. While retiring at 55 to 65 is nice, inflation and rising prices has essentially assured us that we need to work longer and keep in better health.
The FCA understands this and has worked diligently to ensure homeowners are aware of options and potential pitfalls by regulating the industry a little better. Seek advice about interest only mortgage schemes to make the proper decision and protect your financial future for you and your family.
A home reversion plan has reduced in popularity over the years and is not as common as the lifetime equity release plan. The home reversion scheme allows a release of equity by the homeowner selling a portion of or an entire property in exchange for money. This money is normally paid by an equity provider as one large amount or it is paid in monthly instalments. Some providers allow you to collect a large amount in advance as well as small monthly instalments. Home reversion schemes do have their advantages.
The price that the equity release providers will pay for the property will normally be significantly less than the market value of the property. This might sound discouraging but there is a reason for it. The equity release provider needs to do this because the property owner will be allowed to stay in his or her property until he dies or decides to move into long term care. Only then will the equity release provider be able to sell the property. Additionally, they will live in a portion of their property that they no longer own - rent free.
While it might seem skewed towards the home reversion provider, keep in mind that you are leaving behind no debt under this type of release of equity. A mortgage or reverse mortgage leaves behind debt your beneficiaries have to pay off when you move to a care centre or die. You save money by not paying rent, a mortgage, or taking out other loans to pay your monthly expenses simply by tapping into equity you have in property you own.
The amount that the property owner receives is dependent on the value of the property and the percentage that the home owner is willing to sell. If the property owner does not decide to sell all of the property immediately, he or she retains the freedom to sell another portion of the property in the future, if there is a need to do so.
The advantages of home reversion plans are as follows:
• The payment that the property owner receives is tax free.
• The property owner is allowed to remain in his or her property although he or she has sold it or a portion of it.
• There is a guaranteed inheritance to pass to one’s heirs if less than 100% of the property is sold.
• Rent is free.
The disadvantages are as follows:
• The property owner will be selling his property for less than the market value.
• If, for any reason, the property owner wants to buy back the portions of his or her property that were sold he or she needs to buy it back at the current market value. This is a clear loss.
• You must be 65 years of age or older.
Age can be an advantage or disadvantage depending on your income situation. Someone who is retired, has an illness and no income, or a disability at an earlier age than 55 will be unable to take advantage of this type of release of equity. However, if a person can wait until 65 or even older there is a potential of gaining a better value for the portion of home sold. The scheme can work up to 80 with most providers, and some might allow for an age past 80.
If you need money for short term purposes and uses, you should not consider a home reversion plan. There are other forms of equity release schemes that can provide you with the money that you need for short term use without requiring you to sell your house.
One example is the lifetime mortgage release of equity. Like the home reversion, you have some benefits to this type of equity release. You are not subject to payments and instead gain a lump sum or instalment of payments based on the equity you take out of your home. The difference is in the debt on the home. Unless you are able to pay the mortgage back, your beneficiaries may have to sell the home after you die or move to a long term care centre.
Home reversion schemes are not to be confused with sell & rent back schemes, as home reversion plans are fully regulated by the FSA (Financial Services Authority, now the FCA) and the providers will also be members of SHIP (Safe Home Income Plans). Make certain you check providers’ qualifications before you sign for a release of equity scheme.
Stonehaven offers two options for equity release. These two options are: a roll-up equity release scheme and an interest only lifetime mortgage. In order to determine the better option, your equity release mortgage adviser will look at your requirements and will then determine the best option with the most competitive interest rate. Both types of the Stonehaven equity release plans make it possible for pensioners to obtain mortgages, while at the same time, they are offered flexibility and financial control.
Introduction to Roll-up Equity
The roll-up equity plan is a very common option for pensioners today. It allows them to release money that is free from taxes without having to pay monthly payments. The roll-up equity plan of Stonehaven, however, adds interest thus resulting in an increase of the mortgage balance over the years. Read More...
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