There is a growing population of people over 55 years of age who are asset rich, but cash poor. Many of them own houses worth far more than they paid for them or what they owe on the original mortgage. This surplus figure is the equity that is the amount of money tied up in their home. Now there are ways that this money can be converted into ready cash, and these are called Equity Release plans. But equity release is not a simple matter of just signing a document and receiving some cash. There are things that people should be made aware of when they agree to take out an Equity Release Plan.
What Will It Cost?
Apart from any fees that will be applied for arranging the plan, there are other costs to be taken into consideration. The amount of money borrowed will substantially decrease the value of the property and reduce the amount of money you may wish to leave to your family and friends when you die. Every pound borrowed will be money that will not be available for your heirs.
Another cost that should be taken into account is the loss of any means tested state benefits that you may be receiving. The cash received for the Equity Plan could drastically affect your entitlement to benefits and leave you in a worse financial situation than before.
Another cost to be considered is the early re-payment penalty most lenders attached to their Equity release plans. If you hope to pay off the loan before the end of the agreement, it would be wise to check the various lenders and what their respective early re-payment penalties are. Some can be quite punitive.
What Happens If One Of Us Dies?
If both parties’ names are on the mortgage, then the remaining person can stay until the end of the plan. However, If only one name is on the mortgage and it is that person who dies, the surviving partner will have to move out and find alternative accommodation. The usual time given after the death of the mortgage holder before the surviving partner has to vacate the property is a year, but some lenders terms may differ.
It would be advisable for both parties to be on the mortgage before any one decides to enter into an Equity Release agreement.
Will I Lose My Home?
Some Equity Release providers are regulated by SHIP, the Safe Home Income Plans. This plan ensures that you will not lose your home if you cannot keep up payments or enter into negative equity for any reason.
However there some providers that do not supply that form security so it is very important that people select a provider that does offer that protection. Nothing is worth losing the roof over your head.