The term equity release is used to refer to raising money in the way of capital or income against the value of a property. An equity release scheme enables a homeowner, mostly those aged between 55-95 who have paid off their mortgage or have just a very small amount left to pay, to exchange value in their home for tax free cash or income, without the option of repayment. There are basically three types of equity release schemes: lifetime mortgage, home reversion plans and drawdown lifetime mortgage. Usually, the UK property must be of standard construction e,g, brick or stone & have a minimum valuation of £60,000.
For those who qualify for equity release schemes, and are interested, then the first step to take is to calculate just how much capital you can release from your home, before deciding which of the schemes will suit you most. These calculations usually involve the use of a compound interest calculator to determine just how much your home can generate for you as income. You are however advised to seek the help of an expert, an equity release adviser to help you review your options and determine which scheme is best for you. He will also help you with your calculations to this effect.
Your adviser will help you survey the market to search for the best option for you, and return with feedback that he will discuss with you before you eventually make up your mind on which scheme to adopt and then proceed with the rest of the process. He should provide a Key Facts Illustration which is usually a ten page document explaining the 'ins & outs' of the recommended scheme such as the costs & charges & the rolled up balance in the future years.
Advantages of equity release schemes include the fact that it will provide you with capital or income without you having to work for it, no repayment is required from you until your house is sold, and depending on the stipulations of your scheme, you can still move houses if you want to.
The disadvantages however are that the equity value of your property will continue to decrease, assuming the property value does not increase. When you adopt equity release schemes you are borrowing against your home, and if your motivation is that you need ash funds for retirement purposes be it home improvements, new car, holidays, helping the children or just being able to 'live a little'.
