Most people keep shelving their lifelong dreams due to a variety of reasons like financial strains, lack of energy and not believing in themselves. Sometimes you might not even get the opportunity to dust off those shelves and claim your stake in this world.
Well, thanks to financial saints and gurus, almost 60% of persons today can actualize their dreams after retirement. Through the Zeus of all financial products, equity release, homeowners aged 55 and above with properties worth more than €70,000 can unlock the equity tied up in their estate. What’s more, unlike traditional mortgages, you don’t have to dedicate a specific amount of cash to pay off your mortgage every month. With equity release schemes, you just have to ensure you pay off the loan when you die or move into long-term care.
Now, you might find yourself in a confusing state wondering what all this is about. Well, don’t worry. Here’s a comprehensive guide to help you understand what equity release is all about and how you can finance that real estate business using the capital tied up in your residence.
What is Equity Release?
It’s a financial plan that lets homeowners who are 55 years and above to reap the benefits of having equity tied up in their residence and turning it into a cash lump sum or monthly income.
Unlike most standard mortgage plans, with equity release schemes, you don’t have to make any monthly reimbursements, and they let you reside in your estate until you pass away or move out permanently. Only then is your scheme customarily repaid from the sale proceeds of your property.
The capital you release is also tax-free, and you have the financial freedom to spend it on what you want – meaning you get to tour the world, start or complete that real estate project for your firm, make home renovations, and blissfully enjoy your golden years.
You’ve always wanted to go to Cape Town, refurbish your bedroom and fund that project well, you can do that quickly now with the equity release plans.
The Types of Equity Release
There are two primary forms of equity release schemes.
#01. Lifetime Mortgages
It’s a loan for an agreed amount of tax-free cash secured against your property, and it’s available to homeowners aged 55+.
You continue to own the property, reside there rent-free, and you don’t make monthly repayments.
Instead, the capital you borrow and any interest accrued is paid back when you breathe your last or go into residential care permanently. If there is any equity leftover once the loan has been repaid, this then goes to your estate.
#02. Home Reversion Plans
The plan lets you sell part or all of your estate in return for a tax-free lump sum or a monthly income. It’s available to homeowners aged 60 and above.
The price your plan provider pays is below the market value since the plan also offers you the chance to continue living in your residence, rent-free until you pass on or move out permanently.
When this happens, your lender then puts up your manor for sale, and you or your property will receive the value of your share – it’s usually the amount your residence sold for minus the percentage you sold to the equity release provider initially.
Getting an equity release plan is a great way to support yourself financially after retirement. However, you need to ensure that you obtain independent financial advice before taking out a plan. Moreover, if it’s not the best option for you, you can always try downsizing or buying an annuity.