Retaining use of a house, property or other object that has capital value while getting a steady stream of income or lump sum through its value is referred to as equity release. Many people don’t realize that equity release can be an excellent way of consolidating debts and getting your financial situation back on track. If you are able to release some equity from your property, all that will mean is that in the event that you die, the income provider will be repaid by taking hold of the house, property or other object subjected to the transaction. Studies show that this type of freeing up of funds is very popular among the elderly who either have no intention to, or who cannot, leave a large estate to their heirs when they pass on. One example of this is a reverse mortgage which is eligible specifically for people aged 62 and above.
There are different types of equity release arrangements so it’s important that you take time to get to know each of them before you sign up for one. This way, you can determine which is the most suitable and most convenient to your needs. The types or equity release arrangements are:
(1) As part of your Interest Only Mortgage – In this type of equity release transaction, the capital can be paid only when the borrower dies but the interest payments are still shouldered and paid by the borrower while living in the property.
(2) As Part of a Lifetime Mortgage – This is a type of loan that can be secured using the borrower’s home. The compounded interest will be added to the capital through the entire term of the loan. When the borrower moves out or dies, the income provider will be repaid by selling the property. However, while the borrower is still living in his home, he still holds the legal title and he is still liable to the responsibilities as well as cost of ownership.
(3) As Part of a Shared Appreciation Mortgage – This type is all about the lender loaning the borrower a sum of money in exchange for a share in the future increase following the growth of the property’s value. Even so, the borrower can still live in the property until he dies. Also, the older the borrower, the smaller the share the lender will require.
(4) Home Reversion – In this type, when the borrower sells his entire home or a part of it to a third party like a reversion company, his entire home or part of it now belongs to this third party. In return, the borrower will receive a cash lump sum or regular income while still living in their home.
(5) Home Income Plan – With this type of lifetime mortgage, the capital will be used to provide income. This is through the purchasing of annuity which is usually provided by an insurance company.
Equity release can be of great help to people who badly need the money to pay for their medical bills, large debts or for whatever purpose a large sum of money is urgently needed. The best part about equity release loans is that they can provide you with steady income or a lump sum of cash that is non-taxable and can be index-linked. It can also reduce inheritance tax and it can protect you in case there’s a downturn in the real estate market. On the flip side however – it can decrease what you can leave to your loved ones when you pass on. Even so, the advantages of equity release still outweigh the disadvantages – making it a type of loan that is still worth considering.
Alex is a freelance journalist and financial blogger. He loves to write about football and jazz but spends most of his days writing about mortgages, credit cards and tax reduction .
- Stock Carnival Ecstasy – August 11, 2011 (fastswings.blogspot.com)