The Top 18 Equity Release Key Retirement Solutions
As people live for longer and the cost of living increases, it is becoming more and more common for retirees to have financial difficulties during old age. However, a lot of these issues actually arose many years prior to this event, blatantly due to lack of financial planning prior to retirement.
As such, financial planning during retirement has become more important than ever before as managing on a limited budget, fault or no fault of one’s own is a harsh reality for many baby boomers. Therefore, an increasing number of people are looking for flexible ways to get the best value from their existing financial assets in order to address this retirement issue.
The rising popularity of equity release schemes illustrate how much of a growing problem financial insecurity is for many people in retirement. These type of home equity loans offer exactly this type of key retirement solutions many people seek as they usually have no effect on their monthly outgoings.
Let’s look at some of the most significant facts surrounding an equity release mortgage:
- Equity release plans allow you to release some of the equity built into your home as usable cash. Both home reversion & lifetime mortgages allow you to do this without the need to sell the house or move out. So, even as you use some of the value of your property, you can continue to live in the house until the end of life, or until you move into a long-term care home
- There are two main types of equity release plans – lifetime mortgages and home reversion plans. Lifetime mortgages are like regular mortgages, but only available to people over the age of 55, and have no fixed term. They allow you to release a lump sum of equity from your property which even then remains 100% in your own name. There are usually no monthly payments and the interest charged is added to loan & compounds on a monthly or annual basis. This differs from a home reversion plan where you actually sell a percentage of the property to the reversion provider. In return they provide a tax-free lump sum & a lifetime tenancy agreement is made. Both mortgages will then run on until the end of life, or until you move into care. Most lenders provide a window of 12 months to then sell the property so that the equity release mortgage can be paid off.
- A home equity loan calculator can be useful to find out how much equity will be built into your home after a certain period of time. A home equity loan calculator can be useful in a variety of scenarios and is available on a number of financial, comparison and advice websites. A home equity loan calculator is not the same as an equity release calculator and is designed to give you a slightly different information calculus.
- A home equity calculator will need some basic information about your property, including the current value of the property, its location, and the yearly rise and fall in the property, in order to work out the equity built into your home. A home equity calculator is therefore a way to calculate simply the amount of equity expected to be built into your home over a certain period of time.
- However, an online equity release calculator is a different tool in that it can calculate how much equity one could potentially release from their property. An online equity release calculator UK therefore needs to work out the maximum amount an equity release mortgage provider could potentially afford to lend, based on the expected term of the loan, and the value of your home.
- A free equity release calculator is therefore likely to require some basic information about you and your property in order to provide such a calculation. This includes, the age of the youngest enquirer and the current valuation of the property. The free equity release calculator can use this information and based on its database of equity release plans available, can give you a fairly good idea of the maximum release available to you.
- An equity release calculator is an application designed specifically to calculate maximum potential release of equity, but there are many other financial tools designed to calculate different things. For instance, there are mortgage repayment calculators that, based on the loan amount, the rate of interest, and term of the loan can calculate how much your payments will be.
- There is also a general lifetime mortgage calculator based on the age and income of the enquirer which can work out how much they could potentially borrow. Newer calculus allows some more advanced equity release brokerage’s to offer the interest only mortgage calculator which requires slightly more information such as income details, and details of any adverse credit, in order to ascertain eligibility.
- A lifetime mortgage calculator is therefore just one of the many calculation tools available today within the mortgage sector. Depending on what type of application you are using, you may be needed to enter different information relating to your age, health and property, which is relevant to that particular calculation.
- Home equity loans provide one of the key retirement solutions to happiness in retirement. There are different borrowing allowances from all the equity release companies, therefore always consult a home loans specialist who can advise on the many forms of home equity mortgages available.
- Home reversion equity release plans involve selling a proportion of your home to the equity release lender. There are no monthly repayments with home reversion plans, and the entire amount is recovered when the house is sold, when the proportional share of the equity goes to the lender.
- All equity release plans today come with a no negative equity guarantee, which means that your beneficiaries never have to pay anything to the lender even if the equity release loan gets bigger than the property value. This no negative equity guarantee is provided free of charge by the equity release companies, however it is costed into the overall costs and charges of the plan. Should the guarantee not be provided however, the interest rates would be lower on equity release schemes. Therefore any implication of it being free is not entirely true.
- Equity release plans are regulated by the FCA (Financial Conduct Authority) and the Equity Release Council (ERC) is the industry trade body that represents everyone that works in the sector, including qualified advisers, providers, lawyers, solicitors etc. Membership of the FCA is mandatory as they provide the licence upon which advisers are able to provide equity release advice. However, membership of the Equity Release Council is not mandatory for advisers or solicitors, however it is for the mortgage providers who offer lifetime mortgage & home reversion products.
- Recent research has shown that over 80% of the country’s wealth belongs to people over the age of 60, with over £1 trillion in untapped equity. It also shows that many homeowners over the age of 60 have cash flow problems, and are in fact unable to meet their daily costs. The simple equation for their key retirement solutions lies in the equity tied up in their home. Equity release schemes therefore provides one type of solution, however many such as downsizing property still remain & consequently should always be considered.
- According to a recent study by the leading charity Age UK, the two most common ways that people were using their released equity were – home repair or maintenance projects at 46% and paying off existing debts at 35%. Following this statistic come the other lesser reasons to release equity in retirement. These would include holidays, new car, caravan, holiday home, financial assistance for the children, long-term care costs or to create an emergency fund in the bank.
- Equity release plans have become increasingly popular after the Financial Services Authority (now FCA) started regulating the equity release sector. This initially started with the regulation of lifetime mortgages in 2004, which later then incorporated home reversion plans from April 2007. All advisers practicing in equity release must have the appropriate qualifications either through the CII (The Chartered Insurance Institute) or the IFS (Institute of Financial Services).
- There are a number of independent and comparison websites that offer qualified advice about equity release products, and help users understand which equity release plan could suit them best. Search engines, such as Google, Bing or Yahoo will help you search for any related equity release information needed to enable you to conduct your own research. However, even if you decide which equity release scheme you require you would be unable to go direct to the lender as plans can only be completed by qualified advisers. This offers protection to the lenders to ensure the correct plan is taken out.
- The latest type of new equity release mortgage to be invented is the enhanced lifetime mortgage where health can affect the maximum loan you can borrow. Therefore, equity release underwriters assess an enhanced lifetime mortgage as they do with an enhanced annuity plan where a health and lifestyle questionnaire is completed. Depending on the answers & severity of the health conditions, will determine the amount they will lend out. Simply put, the worse the state of health, the greater the maximum release.
There are many facts on equity release offering more concepts for key retirement solutions, as well as about how and why equity release plans have become so popular recently. They also talk about different types of equity release plans that are currently available. For more information visit independent advice websites or consult a qualified equity release adviser.