Equity Release Schemes

2007-03-08 10:33:40

( Financial )



Equity release allows people aged 55 years or older to covert some of the value of their property into funds which one can use to make home improvements or repairs, settle the payment of an existing mortgage, seek medical treatment or use it for any other purpose they see fit. The maximum amount of equity release will depend on one's age and the value of their home. Those granted with equity release are given the choice of being paid in a lump sum amount in cash, paid monthly, or a combination of both.

At present, there are two types of equity schemes:

Lifetime Mortgage allows you keep the full ownership of your property while obtaining a loan against it.

There are three types of lifetime mortgages:

In a roll-up mortgage the equity loan and its interest only becomes due at the time that the home is sold. Any difference between the value of your home and the equity loan is then forwarded to your estate. Compound annual interest is charged and added to the value of your loan.

In a home income plan, a mortgage is applied against your home to purchase an annuity. The amount of the annuity is then paid to you monthly for as long as you live. A portion of the annuity is taken to pay for the interest due before you receive payment. When the last surviving borrower dies, the house is sold and the equity loan is paid in full. Any remaining amount after payment of loan will go to your estate.

Drawdown mortgage is a form of roll-up mortgage. Instead of taking a lump sum amount, a smaller amount of money is taken out at the beginning of the loan and the remaining amount is either withdrawn monthly, or as needed. Like roll-up mortgages, the loan becomes due when the house is sold.

The second type of equity scheme is called a reversion scheme wherein a portion of your home needs to be sold in order to obtain cash. There is no interest charged on the lump sum amount that will be released; however, you only receive a percentage of the sale price because the remainder of the sale price is used to pay for the service fee of lender. Under this type of equity scheme, the legal ownership of your property is sold and you become a tenant. You are still responsible for any property fees tied to it.

In considering for the application of equity release loans, one should make comparisons between different companies. It may also be a good idea to seek legal advice.


All rights Reserved © Tradenet Services srl
Do not duplicate or redistribute in any form.