Monthly Archives: October 2013

If I Release Equity, who is responsible for the maintenance of the house?

Equity release schemes can offer an important option to people who are looking to increase their cash flow and at the same time retain their home. If you are considering a home equity release, it is important to understand exactly what it entails and seek professional advice regarding the different policies available.

General information about equity release plans is widely available on the internet. There are many equity release FAQs available online, and this can give you a basic idea of what equity release means, as well as the associated benefits and risks. However, it is necessary to take advice from an independent financial expert about the specifics.

An independent financial adviser who has specialist knowledge about equity release plans and home equity release will have up to date information about different products and providers, as well as about which product is suitable for your particular situation. Another important factor is that an independent advisor has no affiliations to equity release providers and can therefore give far more impartial advice.

An equity release mortgage is a loan taken against the value of the house. Both home reversion loans, as well as lifetime mortgage equity release loans, need to be repaid to the lender once the house is sold. However, the house can only be sold after the owner has died or moved out and into permanent care. In case of joint applicants, this is done after the second applicant has died or moved into care.

When it comes to ownership, there is one key difference between lifetime mortgages and home reversion equity release plans. Home reversion involves selling part of the house and lifetime mortgage involves taking a loan against the house. As such, in home reversion the ownership of the house is transferred to the lender, and in lifetime mortgage, full ownership remains with the borrower. In both cases, the applicant is fully responsible for the maintenance and upkeep of the house.

There are many equity release providers and increased competition in the market has resulted in more competition and better rates for customers. Also, improved and more flexible home equity release products are now available compared to mortgages available until a few years back. You can compare different equity release products on websites such as equity release supermarket.

Are Equity Release Schemes protected?

Equity release schemes have come a long way since they were first introduced in the market. Equity release plans proved to be a very popular concept, and it is their popularity that paved the way for new, improved and more flexible options. Equity release mortgages today are also better regulated when compared with older mortgages.

The popularity of equity release is due to a very real need in society. Living costs have gone up considerably, as have property prices. In this light, pensioners who own homes, but not have enough cash flow can find equity release to be a good solution. It allows homeowners to increase their income during retirement, without the need to sell the property and move into a different place.

The Financial Services Authority (FSA) is a body that regulates financial services and products. The FSA aims to maintain transparency and fairness in communication related to financial services, including advice issued to customers. It also aims to eradicate financial wrongdoing. Equity release schemes and mortgages today are completely regulated by the FSA. Equity release customers can seek support and protection from the FSA.

A common concern that people have with equity release mortgages is the potential risk of negative equity. Due to compounding interest built up over a long period of time, an equity release debt can become quite large compared to the amount borrowed. When the house is sold, if the amount owed is higher than the sale value of the house, a negative equity is created.

As the equity release market has matured and become more competitive, it has also become safer for customers. Safe Home Income Plans is a self regulated body that aims to serve customers by making the terms of equity release mortgages more transparent and safe. For instance, all SHIP equity release schemes offer a no negative equity assurance. This means that any negative equity does not need to be repaid to the lender.

Solicitors that can handle all the paperwork related to an equity release application, as well as provide specialist advice. The equity release solicitors’ alliance  ERSA, is a charter of specialist solicitors dealing with equity release mortgages. There is a wide variety of equity release schemes available in the market. It is important to seek professional independent expert advice regarding equity release. Independent experts can provide guidance on the potential risks and advantages of equity release for you.

When does the Equity Release Lender require their money back?

It is all very well to own a real estate property, but when it comes to day to day life, what is required is cold, hard cash flow! One way of turning a home into cash is to sell the property and move into another place. Another option is to get an equity release mortgage on the property. Equity release schemes allow you to free up some of the value built up on the property without the need to sell or move out.

One of the main attractions of equity release is the fact that it allows you to continue living in the same house, while giving you the flexibility to use up a portion of the equity built up on the property as cash. This is essentially a loan, which is repaid to the equity release provider once the house is sold. So when is the house sold? Equity release schemes work in such a way that the property cannot be sold until the owner has either died or moved into permanent care. Once this happens, the house is sold and the money recovered.

A common concern is that an equity release mortgage can run up huge debts that can even turn into negative equity on the house. This means that once the house is sold, if the sale price of the house is lower than the amount owed, this needs to be paid as well. While this may have been a potential risk with some equity release schemes in the past, most modern equity release plans come with a no negative equity guarantee.

An equity release mortgage is designed to last over a long period of time, however, this is not to say that the loan cannot be repaid earlier if chosen. Many equity release schemes, however, have early repayment charges which apply if the loan is paid ahead of the contract term. These charges are meant to protect the lender from losses incurred due to early repayment.

Whether it is a lifetime mortgage or a home reversion plan, most equity release schemes have certain guarantees that ensure that the owner can continue to live in the property for as long as they live, and that the property cannot be sold until then. However, an equity release mortgage is a big thing and has serious implications. It’s important to seek expert unbiased advice to find out whether it is the right option for you.

Which solicitors can process my Equity Release Application?

The decision to take out an equity release mortgage is not a small one. It has major implications on your life, and as such, the decision should be taken with careful consideration, and with the help of expert advice. Fortunately, as the equity release market has matured over time, it has also become safer for consumers with independent regulatory bodies committed to maintain high safe practice standards.

Safe Home Income Plans is an independent trade body that aims to ensure transparency and consumer safety in the context of equity release plans. SHIP approved equity release providers adhere to certain rules that are designed to maintain transparent communication to consumers, as well as safety measures such as the no negative equity guarantee.

There are certain procedures that need to be followed while applying for an equity release mortgage on your house. Procedures include valuation and completing the application process as per required terms, which can be done by professional solicitors. There are solicitors that specialise in equity release schemes, and can therefore ensure that everything goes smoothly.

The role of a solicitor in the process of getting an equity release is not just to guide you through the paperwork, but more importantly, to guide you through the potential risks and rewards of equity release in your specific context. A solicitor who is an expert in equity release will have up to date knowledge about different options suitable for your particular circumstances. It is therefore vital to find an expert solicitor who knows the equity release market.

Some specialist solicitors firms have formed an independent charter known as the equity release solicitors’ alliance or ERSA. The objective behind this alliance is to uphold the importance of expert and specialist advice within the field of equity release mortgages and also to increase awareness of the public regarding this. If you require guidance about equity release in general or about specific equity release schemes and their suitability, it is necessary to take advice from an expert in the field.

While there may be a lot of information available on various platforms, such as the internet, when it comes to financial products such as an equity release mortgage, it is important to seek information from genuinely impartial sources. An independent financial adviser or solicitor can give fair and unbiased advice about a product, unlike any party affiliated with a particular provider or company.

How is my Equity Release paid off?

Equity release is a relatively new concept in the world of finance. When property prices began to soar over the last two decades, a situation arose where many people owned valuable properties, but due to rising costs of living did not have enough income to support their lifestyle during retirement. Equity release was an answer to this gap in the market.

Equity release mortgages allow you to free up some of the equity built up on your property, without the need to sell the house. It allows you to continue living in the house, but free up some of the value of the house and get it as a loan, either as a lump sum or in smaller regular installments.

The two main types of equity release mortgages are lifetime mortgages and home reversion plans. A lifetime mortgage is a loan taken against the home. Interest is generated on the loan, which usually compounds and results in a debt much bigger than the original loan. However, such loans do not need to be repaid until the homeowner dies or moves into permanent care, and the house is sold.

Modern equity release mortgages have a no negative equity policy. This means that if your debt becomes larger than the sale value of the house, the negative equity does not need to be repaid and is written off by the lender. This is how lifetime mortgages are repaid. In case of a joint application, the loan is expected to be repaid only after both the applicants have either died or gone into care.

Home reversion is a way to sell a portion of the house notionally, and take the loan of that amount. The loan and interest are repaid when the house is sold. The principal amount that needs to be repaid is the same proportion borrowed of the total sale value of the house. Therefore, the amount that needs to be repaid reflects the market value when the property is sold.

When interest builds up on the principal amount, this interest is added to the principal and the next year, interest is charged on this bigger amount. This compounding interest can result in huge debts, which is one of the main risks concerning equity release mortgages. Equity release lenders now offer what are known as interest only lifetime equity release mortgages wherein unlike roll up mortgages, you only pay the interest every month and when the equity release scheme ends, the amount to be returned remains the same as the amount borrowed.

Can anyone else live in the property if I take out Equity Release?

Equity release schemes are essentially loans that one can take out against the value of their property. This loan plus the interest that has accrued on it over the years is repaid once the owner has died or moved into long term care, and the house is sold at market value. In a time when living costs are on the rise, home owners are turning towards equity release as an option for financial planning during retirement.

There are two main types of equity release plans, the lifetime mortgage plan and the home reversion plan. Lifetime mortgage is exactly that – it is a loan that is designed to last the entire life of the applicant, and is repaid along with the interest when the house is sold. The applicant legally owns the house and can live in it as long as they live or move into long term care. In case of joint applicants, the house cannot be sold until both the applicants have died or moved into care.

In home reversion plans, a part of the house is sold to the lender. Once the house is sold, proportional share of the sale value of the house is repaid to the provider. Home reversion is not a loan against the house, but a notional selling of part of the house. Both equity release plans accrue compound interest on the loans.

One of the main advantages of an equity release scheme is that you can continue to live in your own home. Of course, that it generates an additional income is also an important advantage, but this could also be achieved by downsizing. Applicants can live in their home for as long as they live. Many people also use equity release loans to pay for home care, so that they can go on living in their own home.

Once the applicants have moved out or died, the equity release scheme ends and the house must be sold. The applicant’s family cannot continue to live in the house after this, unless the full amount of the loan plus interest can be repaid immediately by some other means. In case of home reversion plans, the loan amount increases in proportion to the market value of the house when it is sold.

Sometimes it may be necessary to add another applicant to an existing equity release plan. In cases where joint applicants get divorced, it may also be necessary to remove an applicant from a plan. It is possible to do this, in theory, but is subject to the lender’s terms and conditions for that particular loan. It is therefore important to seek specialist advice and guidance before taking any step related to equity release.

Can I top-up my Equity Release Mortgage?

An equity release scheme works out to be the best option for many people who own a valuable property, and need additional cash but do not wish to sell the property. Equity release is fast becoming popular as a way to add to your income during retirement. Interest rates are very competitive today, and the market has some of the most flexible equity release schemes on offer. As such, this may be a good time to explore the option of an equity release loan on your property.

For those who already have an equity release scheme in place, it may still be a good idea to shop around for alternate equity release schemes for two possible reasons. One, it may be possible to get a more competitive mortgage and make significant savings by switching, and two, because you may have exhausted your existing loan and may need an additional loan.

Some lenders do offer top up loans on existing equity release plans. If you have had your existing equity release mortgage in place for more than five years, you may be eligible to apply for a top up. There are independent advisers who can give you advice on equity release top up loans, and alternate schemes.

Some equity release lenders charge early repayment penalties if you repay the loan earlier than a certain period of time. These penalties, if any, vary with each equity release scheme but may be quite high. However, more competitive terms of modern equity release schemes may mean that in spite of an ERC you could still stand to make savings by swapping your existing mortgage for a new one.

If you have had an equity release scheme and are considering shopping around for an alternate scheme, it may be advisable to seek the guidance of an independent financial expert. Independent advice is invaluable in matters such as financial loans, and many financial advisers also handle the entire process of dealing with your existing lender and setting up the new loan.

The internet has some good resources for equity release information and comparison. You can find companies that offer financial advice and information and there are equity release calculator tools available online which may help you get a rough idea of how much additional loan you are eligible to get. Online comparison sites are also useful for equity release comparison and to find the best equity release scheme available now.

Are Equity Release Schemes available on a buy-to-let, 2nd home or holiday home basis?

Equity release is a popular way of raising money on your property without having to sell the house. There are different types of equity release mortgages, but essentially it is a loan taken against the value of the home, and is repaid when the house is sold, after the owner has died or moved into care. If you have more than one property, it may be possible to release equity on the second home as well. Buy to let equity release is now available from certain equity release lenders.

Some lenders offer equity release loans on multiple holiday homes as well as buy to let homes. Loans are usually offered only if the landlord or the landlords’ family does not rent or live in the property. Buy to let equity release rates are different from home equity release interest rates so it’s worth using an equity release calculator specially designed for buy to let equity release.

Of course, most lenders do not lend if there is an existing large mortgage on the property. The mortgage, if any, must be smaller than the equity that can be released on the property. The amount of equity that can be released on a holiday home depends on several factors, including the age of the applicant. Buy to let equity release is generally only offered if the youngest applicant is over 55 years of age. Landlords with up to 5 buy to let properties can potentially release a proportion of the equity on each property.

The amount of the loan generally varies with age. The more the age of the applicant or the age of the youngest applicant in case of joint applications, the more the proportion of equity that can be borrowed. Also, loans are generally offered in lump sums as opposed to monthly borrowing. Buy to let equity release schemes are becoming increasingly popular, especially among landlords with an extensive property portfolio, as it opens up many possibilities for them in terms of financial planning and further investment.

As with any equity release mortgages, buy to let equity release mortgages involve some setting up costs. These include professional valuation fees which are usually in proportion to the value of the property, application fees, and solicitors’ fees. In addition, if you go to an independent financial adviser, setting up costs also include any fees charged by the adviser.

Individual buy to let equity release schemes may also have additional costs such as early repayment charges. These vary with each policy and as with any financial loan, it is important to find out about all the associated costs before entering into any legally binding contract.

Should I tell my children about Equity Release?

One of the reasons for the increasing popularity of equity release mortgages is the rising cost of living and the inadequacy of pensions as the only source of income during retirement. Equity release mortgages are increasingly being considered as an option for financial planning during retirement by homeowners who are sitting on valuable property but need additional cash flow.

As the demand for equity release loans has increased, companies have begun diversifying the type of equity release plans on offer. Equity release mortgages available today are much more flexible compared to their counterparts a few years ago. Interest rates are also generally lower than a few years back. As such, now may be a good time to explore the market and compare equity release options available, for those who are interested in this option, as well as those who already have an equity release mortgage.

As with any financial loan, there is both an upside as well as a downside to equity release mortgages. By taking a loan against the property, the equity in the property is effectively decreased. This has repercussions for the inheritance that you leave behind for your family. There is also the chance of negative equity, where the amount you owe exceeds the value of the home, although most lenders nowadays cancel out any negative equity owed.

Equity release does provide a good way to raise additional money during retirement, whether it is for a one off expense such as a holiday, a car or home refurbishment, or a regular supplementary income. However, an equity release mortgage potentially affects not just the claimant but the entire family. It is therefore important to take the family into your confidence before opting for such a big step.

You can read up information on equity release online, as well as compare equity release mortgages, but the best thing to do if you’re considering releasing the equity on your home is to talk to an independent financial adviser. This will enable you to get objective and impartial advice on equity release, and whether it is suitable for you. Depending on how much additional income you require, whether or not you want to leave an inheritance, and other factors, the adviser can also guide you about which equity release loan works best for you.

Financial issues are a common reason for family feuds. Things like inheritance are a sensitive matter and before taking any final step relating to your property, it is advisable to understand the consequences thoroughly. There may be other alternatives to raise money, and downsizing is always an option. Equity release mortgages may not be the right choice for some, and may be the perfect choice for others. But once it is opted for, it is difficult to opt out of equity release loans, so take your time to understand exactly what it entails.

Do I need insurance if I apply for an Equity Release Plan?

As property prices have risen dramatically over the past two decades, thousands of homeowners find themselves in a position where they own valuable property but require additional cash flow to support them during retirement. This has led to equity release plans becoming increasingly popular in recent times. These loans allow homeowners to continue living in their property whilst freeing up some of the value of the house in the form of a cash lump sum, or monthly payments.

There are mainly two types of equity release schemes, lifetime mortgages and home reversion mortgage. A home reversion plan is where you sell a proportion of the property in terms of value, and this loan is repaid after the house is sold. A lifetime mortgage means that you mortgage the home against the loan, and make interest payments over your lifetime. In both the loans, the balance is recovered after the house is sold. This is usually after the owner has died or moved into long term care.

As the equity release market has matured, mortgages have become more flexible in their terms. Today there is a wide variety of loans available in terms of how you repay, period of repayment etc. There are equity release comparison sites that can help you get an idea of the different types of loans on offer.

Equity release plans essentially offer loans against the property as collateral. As such, most equity release lenders require the applicant to have a valid home insurance policy on the property. This is meant to protect the property from damage due to different causes, such as fire or flooding. Home insurance in this case means buildings insurance and not just home contents insurance.

An independent financial adviser can give you objective and sound advice on equity release in general and give you information about the different equity release plans available. Too much choice can be confusing and an adviser can help you choose the right loan for you. An adviser can also provide accurate guidance on the procedure of applying for an equity release mortgage and the type of insurance you are required to get etc.

Equity release loans do not suit everyone, but could be the perfect option for many. Whether you’re looking to raise extra cash for a specific goal, or boost your regular monthly income, freeing up some of the equity in your property without selling your home could be just the option you’re looking for.