release schemes have become increasingly safer over the past few years with inheritance protection options becoming more available. It is becoming apparent that equity release plans are now evolving further and diversifying. In today’s market a number of different providers have entered the arena with a variety of different equity release schemes. Although equity release plans prove to be a great option for many people, it is important to understand the concept & implications of equity release before going ahead with it.
You’re possibly wondering – is equity release a good idea?
If so then you need to understand the main reason for people being anti-equity release, which is the effect it has on their beneficiary’s inheritance. You therefore need to gather more information on equity release mortgages and the role they have to play in the retirement planning process.
One of the most common concerns that people have with equity release schemes is whether it will affect the amount of inheritance they leave behind. An equity release mortgage allows you to release some of the equity that is built up on your home, thus devaluing the property initially by the same capital amount. Over time however, this amount significantly increases as compounded interest gathers momentum, thus reducing the value of the estate. This essentially means that you’re using up some of the equity of the home, and leaving a devalued property behind.
There are different types of equity release schemes, and the two most common types are home reversion and lifetime mortgage schemes. A lifetime mortgage is a loan taken against the value of the property, which is repaid only when the owner has died and the house can be sold. A home reversion plan is the process of selling a part of the house to a reversion company, the proportional value of which is recovered once the owner has died. By selling a small part of the home, you can ensure that you leave something behind. This is one of the main advantages of home reversion plans over lifetime mortgage schemes, However, lifetime mortgages have come a long way in design & functionality over the past couple of years.
As equity release schemes have evolved they have endeavoured to become less risky. One of the characteristics of new equity release plans is that they come with a no negative equity guarantee. This means that whatever is left over after your debt is repaid goes to your beneficiaries, but if your debt is larger than the sale value of the property, the negative equity is cancelled out, and does not get carried over to your family. This is particularly relieving to those who want to release the equity on their home but are concerned about its repercussions on those they leave behind. Of all schemes this would be beneficial for would be the roll-up lifetime mortgage scheme whereby the borrower has taken the maximum advance possible.
Modern lifetime mortgages also have a new security option built into them which is called the ‘inheritance protection guarantee’. Equity release providers such as Aviva, Stonehaven, more2life all offer this safety feature available. By selecting a percentage of the property value you wish to protect, allows a fixed percentage of the property value to remain on the eventual sale of the property. The higher the percentage inheritance guarantee selected, reduces the maximum loan amount available from inception of the plan.
Equity release schemes have their advantages and disadvantages. While they may not work for some, they may be the perfect option for many others. As far as protecting your loved ones goes, modern equity release plans provide both a no-negative equity guarantee and an inheritance protection guarantee so as not to affect your family. However, always bear in mind taking out the equity from your house automatically reduces the value of the property you do leave behind.
Therefore, ensure you speak to a qualified equity release adviser who can explain both the pros and cons of equity release. Equity Release Supermarket provide a free initial consultation to discuss all issues around all aspects of inheritance protection including interest only lifetime mortgages.
Call the team today on 0800 678 5159 or email [email protected].
