The Benefits of Equity Release
The Benefits of Equity Release
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Home Page > Finance > Personal Finance > The Benefits of Equity Release
The Benefits of Equity Release
Posted: Mar 17, 2011 |Comments: 0
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Equity Release is a financial term that implies to the income estimation derived from retaining a capital item. This definition of equity release can be further explained for better understanding. For example, consider you own a house. It has certain value in the market. And since it is a fixed asset it is considered as a capital item. When you live in it or use it for other purposes, it delivers you some value in economically measurable terms. The estimation of value you get using the house is called equity release.
This is especially applicable to the senior citizens who are not able or do not intend on leaving massive estates for their heirs. Although the catch is, the income provider receives payment at a later stage this is usually when the person dies.
Equity release is of two types. One of the most common one is lifetime mortgage. This is whereby the homeowner retains the ownership of the property. This acquires rolled up interest over the period of the homeowner’s lifetime.
Something that is vey helpful is that customers are offered a free calculator to show a rough estimate of the amount of equity that could be potentially released. The purpose of this calculator is to help you be able to make a wise choice.
The second type is the reversion plan. This is when a homeowner sells part of the property to the equity release provider in return for a right to remain at the property without paying rent. The equity release is fully regulated and this means that both types of mortgages now fall under the Financial Services Authority.
There are several advantages connected to equity release. One of the most important ones is that in the eventuality that interest rates fall. Borrowers are free to refinance their mortgages at a lower cost with other providers. Another very important one is that there is that No Negative Equity Guarantee protects the borrower incase there is a downturn in the housing market.
Another advantage with the equity release is that it reduces the amount of inheritance taxes that are to for your estate. It provides a lump sum of tax-free cash or a steady income annuity that you can link it to the rest of your life. There are several arrangements that are available in order to make this process much easy and simple. All these plans will enable you to have a more comfortable plan and arrangement for living comfortably at your old age. Some of these plans include lifetime mortgage, interest only, home revision and home income plan.In order to ensure that you are safe with this process ensure that you look for plans that carry the logo SHIP (for safe Home Income Plans).
This body is set up to promote safety in equity release. Companies provide a number of guarantees. These include the right to live in your property for life, the freedom to move to an alternative property without penalties. Lastly, it ensures that you never owe more than the value of your home.You get a better rate the older you are as you get your pension. If you are just retired, it is better to wait a little while before getting into an equity release scheme. This enables you to get a better deal. On the other hand if you are very old or in poor health you should think critically about schemes paying monthly incomes. This is because you may not live long enough to get a decent return.
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