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Can I Use Equity Release Instead of a Pension?

January 9th, 2012

It is a big risk to do this. If you are not yet near retirement age and have a mortgage, then you may think that when you do retire you will be able to release some equity in your house and that will give you an income or lump sum that will pay for your living expenses during retirement. This sounds like a great idea in theory, but it is a huge risk to take.

Firstly, there is no guarantee that a financial institution would be interested in your house. They may decide that they do not want to invest in your property and so you may not be able to get the money from anyone.

The way that banks and other financial institutions work changes over time. It is very possible that in the future they may decide not to offer this sort of scheme. They are fairly new at the moment and they have probably not properly tested them to see how profitable they are. This means that they may decide to withdraw them in the future.

Banks are also wary to lend money at the moment. Although they are being pressurised to lend more, there is no guarantee that they actually will and so there could be problems in the future with getting hold of money from banks.

There is also talk of reducing bonuses from the heads of banks. This could mean that the management structure changes because some people may not be prepared to work for the company if they do not get paid so much. This could mean that a different generation of managers come in and they may change the way that the banks work and they may not lend in the same way.

None of us have a crystal ball and so we cannot predict the future. This means that it is a good idea to minimise the risk and plan well. At the moment it seems like pensions will be the best way to get an income for the future and so this is what you should be using for this purpose.

You should therefore not rely on using this sort of scheme instead of having a pension. Pensions are designed specifically to give you an income through your retirement and they should be the only product you use for this purpose.

Would Releasing equity Give me enough Money to live Off?

January 9th, 2012

This question is something that many people are pondering at the moment. With pensions not being enough to live off and interest rates being low, there are many retired people looking for a new way to get income.

The problem with calculating how much you will need to live off in the future is that you cannot predict what prices will be. You do not know what sort of expenses you will have. You may just calculate how much your food and bills will be, but there will be extra expenses too. You may need to do home renovations, you may want to go on holiday, you may want to give money to your children or pay for you grandchildren to go to university. Therefore you could need a lot more money that you might initially think.

There are various way to make a guess as to how much money might be the right enough for you to live off. These are useful as they will at least give you some sort of an indication.

If you do decide to release some equity in your property, then you may have the option of doing it again in the future. Talk to some financial institutions about this option. It means that you will not take more than you need initially, but if you find you need more in the future, they may be prepared to let you have some more. It could be a more flexible way of doing things. However, even if they say now that they would be prepared to give you more money in the future, do not completely rely on it because they may change their way of thinking then. There is likely to be more legislation with regards to banks and their lending and so be cautious and make sure you think hard, do lots of calculations and try to get the amount you need right first time.

Whether this money will be enough to live off, will very much depend on you and your standard of living. It is a good idea to work out how much you should spend it month assuming that you live to a ripe old age. Then you will be able to stick to a spending budget and make sure that you do have enough money to live off for the rest of your life.

Why Would I Want to Release Some Equity?

January 9th, 2012

There are all sorts of reasons why we need extra money, however, releasing some equity in our home is a big step. However, many people still do it for a good number of reasons.

In the current financial crisis, many people are struggling financially and need some help. Many people are struggling to manage on their pensions. This is because many people assume that they will need a lot less money to live off when they retire, than they actually do. Some of them bought annuities with their retirement fund and these have not done as well as expected. There are other people who had their retirement fund invested in shares and the stock market weakened. Others are relying on interest on their savings to help them to afford to live and with interest rates being so low, there is not much money to be had.

It is sad that people who have saved their whole working lives towards their retirement, do not have enough money to live a comfortable life. This is why there has been a demand to release some equity in property. Many people have a lot of their assets tied up in their home and while they are living there, wonder how they can get some of that money out.

It is now possible to release equity for your property. This is something which more and more financial institutions are offering to their customers. They allow people to remain in their houses, which means they do not have to downsize, which is something that many people do not want to have to do. It will allow then to either have a chunk of money or have a monthly income. It does mean that when they have finished with their house and it gets sold, the bank will own some or all of it so not just the money that was given but also the increase in value of that percentage of the property.

Having that money could just mean that someone gets a better quality of life. However, it could mean that they could afford great holidays or that they can give money to their children or grand children. There are lots of great things that the money could be spent on. If you have worked hard for that money, then why not spend it while you still can, rather than leaving it to someone else to spend after you have gone?

What Does ‘Releasing Equity’ Mean?

January 9th, 2012

If you own a property, then you will be aware that you have a lot of money tied up in it, but no easy way of getting that money out. By the time you have paid off your mortgage, it is likely that you can no longer get a mortgage and why would you want to, now that you own your own house. However, sometimes it can be a struggle coping financially and you could really do with finding a way to use that money.

Equity release is a way that you can get some money out of the property that you own. There are different ways of doing it, with banks having different schemes that you can take advantage of. You can normally borrow a chunk or the full value of your property. This means that you will be able to have a chunk of money to spend. Some even allow you to take a regular income.

It is an expensive way to get money and may mean that you have less for your children to inherit. However, some people would like to see their children spending their inheritance before they die and so they release the equity in their home and distribute it so that they can watch their family enjoying it.

It can also be a good way to live a better quality of life. If you have worked all of your life so that you can pay off your mortgage and have the security of a house but find that your pension and savings do not give you a decent income when you are older, it may seem that you have wasted your time. You may decide to get some of that money back so that you can have a better quality of life at a time when you should be able to be enjoying yourself.

There are all sorts of reasons why a bit of extra money could be a great bonus for anyone and so by having the option to release some of the money from your home, you could find yourself having a much better retirement. It is better if you can have fun and enjoy yourself, have those holidays you have been putting off and being able to spoil your grand children. Much better than scrimping and saving for years and always worrying about money and how much you have.

Lump Sum Release

January 6th, 2012

If you need a lump sum of money in retirement, perhaps to pay for a home renovation, holiday or emergency, then you may decide to release some equity in your house. This sort of lump sum release is something that more and more people are doing so that they can be better off in their retirement.

Many retired people are struggling. Many have not tucked away a big enough nest egg or a pension that pays out enough because prices are much higher than anyone predicted. It can be a shock when someone goes from earning an income to suddenly having to manage on their pension. If they have no savings, then they may start to struggle. With interest rates being low, even with savings, they do not see much return on them and so may not have enough to live off.

If they own their own home, then they might wish that they could get some of the equity out of their house. They are able to do this using a selection of equity release schemes, some of which will give a regular income and others which will give a lump sum.

There are advantages and disadvantages to releasing some equity in your home. It is worth considering the options very carefully. The main problem with it, is that it is a very final. Once you have done it, it is unlikely that you can reverse your decision and it might be something that you regret. However, you do not need to hand over all of your house but just release a bit of money from it. Then you will still have a big chunk if you need some more money or to leave for your children to inherit.

A lump sum could be a godsend. It could help with all sorts of things and you will find that you can feel more relaxed if you have a bit more money. In fact even knowing, in the back of your head, that you can release some equity in your home if you need to do so. It can be difficult knowing that you are living in a place which has so much money tied up in it that you cannot access, especially if you are struggling financially. With equity release being something that has only recently started to be overseen by the FSA, then it is a fairly safe thing to try.

Comparing Interest Rates

January 1st, 2012

Whenever you take out a new financial product, you should check out the interest rates. This applies to equity release as well as everything else. If you go for home reversion, then the interest rate will not be relevant, but for lifetime mortgages, then it certainly will be.

It can be tempting to assume that the product with the lowest interest rate will be the cheapest, but this may not be true. It is worth taking a look at the products in more detail to see exactly what they are offering.

Some may have a lower fixed interest for a while, that then goes up. This could be a good way to do things, but it is worth thinking about the advantages and disadvantages of this and any risk involved. With interest rates low, they will not go below what you are paying at a fixed rate, but once you move on to the variable rate you may be paying a lot more than other companies are charging.

Therefore it is important not to just look at the starting rates, but their rates for old customers. It is also worth looking in to any fees or charges because these need to be factored in to the costs as well as the rate of interest. You also need to consider whether you can afford to pay it back each month. Think about your monthly income and what you spend it on at the moment and whether you can afford the interest payments. You also need to think about the fact that interest rates could go up and so you need to be sure that you will be able to afford that.

At the moment interest rates are at a record low. Therefore when comparing them, you may find that many places have low rates. However, when they start to go up, some may rise more quickly than others. It can be a good idea to have a look at the history of that particular lender and see how quickly they tend to put their borrowing rates up after an interest rate rise. If they put them up quickly, then maybe it would be better to look elsewhere. Finding this information could be tricky but looking at reviews online and on financial forums and also talking to people who are customers with that lender, should help you to get an idea of what they are like with regards to how quickly the change interest rates.

Looking at the Costs

December 30th, 2011

When you are buying anything you should compare the costs carefully and you should do the same thing with financial products. When you are considering equity release it is so important to consider the costs of it all before you start.

There are many different companies that offer equity release schemes and they vary a lot, both in the way that they work and in their costs. It is very important to consider which will work out best for you in every way, including costs. Therefore you need to gather all of the information that you can about the different products available to you, that will provide you with what you want.

Often with financial products there can be hidden fees, costs or charges. The details tend to be in the small print, explained in the terms and conditions but may not be made obvious in the brochure or within the abbreviated information on the website. It is therefore very important to read through everything to see what the charges are. You may find that on the website, there is a section about fees. You can always phone the customer services to ask them what they charge for and how much they charge.

It is so important to find out all of the costs or else it is not possible to properly compare the different companies. It is also a really good idea to compare interest rates too. Remember that interest is a part of the cost and so this needs to be part of the considerations as well. It can be easier to write down all the options and how much they charge for different things, so that you can compare them side by side. You may find that there are some comparison websites which will have this sort of information that can help.

It might seem like a big effort, but it is very important. A few extra costs can add up and this is something which once you sign up for, you will be tied in for life and so you need to make sure that it really is the right thing for you. You want to make sure that you will not regret going in to it because the costs are higher than you had imagined they would be. However, if you research enough, you will be able to sign up and feel really confident that you have made the right decision, with all of the information that you could possibly get on hand.

Drawdown products

December 26th, 2011

Drawdown schemes are actually the most popular way to release equity in property. This is because the low interest rates at the moment, make it a very attractive proposal. It is currently a very competitive part of the market and so low costs and good interest rates are likely to be found at the moment.

They work by allowing you to release some equity form your home and then take the money in stages. So you do not get a large lump sum, but you get a series of smaller amounts of money. It works by releasing all of the money but holding most in a reserve. Then it is available for the home owner to have when they want it.

The advantage of doing this over taking one larger lump sum is the interest. You will pay interest only on the sum that you have taken from the reserve. So it is likely that there will be a lower interest costs over the term of the loan. It could also mean that there will be inheritance left.

Another popular feature is that you can make withdrawals whenever you like. It means that if you have a sudden need for money, you can request it, rather than struggling or having to wait a while to acquire the money. It is almost like having a savings account with money that you can draw on.

It is possible that you may lose benefits if you release equity in your home. However, if you only draw smaller sums of money, these may not effect your benefits as they are often determined by how much money you have saved and so if you stay below this level, you will not lose this money.

There are some disadvantages to the scheme though. You may not be able to withdraw a large amount of money initially, so you may not gt as much as you need. Sometimes the reserve facility is not guaranteed and the lender might draw on it. Later withdrawals could be at a higher interest rate than earlier ones which could make it expensive and the you may be restricted on how big your reserve facility can be.

Like all financial products you will need to check all of the terms and conditions and use a lender that you trust to ensure that you get the best possible service and deal for you.

Aren’t Equity Release Schemes a Con?

December 21st, 2011

There are many people who do not like the idea of equity release as they have heard bad things about them. It is important to make sure that when you go in to anything like this, that you make sure that you find out a lot about it first. You need to be sure that you understand exactly what you are getting in to.

Often when people feel that they have been conned it is because they have not read the terms and conditions properly. They have not fully understood what they are signing up to and so although they claimed they have been conned, it is actually that they have not understood. Therefore it is extremely important to make sure that you know exactly what you are getting in to. Make sure you read all of the paperwork, especially the small print and ask lots of questions. It is wise to take advice from someone else as well, perhaps someone who is neutral to the situation, a family friend or member of the family that does not stand to inherit anything. It is also worth discussing with anyone who has had any previous experience of this sort of scheme.

Of course, you also need to be careful about the company that you use. You want to make sure that you trust them as, sadly, there are some companies out there who are not trustworthy. Therefore go with a company that you know and trust or with one that you can find out a lot about. It is always good reading online reviews about companies and asking people about their experiences of them.

It can be tempting to go with a company that you have not heard of because they are offering the best interest rates or cheapest products. However, there may be a good reason why they are cheap, they may not offer a good service. So phone up their customer services and ask lots of questions. See if you get good responses and whether you think that the staff are knowledgeable enough in your opinion. Do this with a selection of companies and you will be able to compare them, not only on their products but on how good their customer services is. Never let yourself be talked in to something on a first phone call. Make sure that you call a selection of companies and compare them. Also sleep on the decision as it is a big one to make.

What is an Equity Release Mortgage?

December 18th, 2011

An equity release mortgage is a scheme which is growing in popularity. It is something which tends to be available to people from the age of 55 who have finished playing for their house in full. How it works is that the home owner can get a new mortgage on their property for a certain lump sum. The mortgage runs for the rest of their lives and they will not have to pay anything back. Once the home owner(s) no longer need their house, either because they die or go in to a care home, the property is sold. Then the sum borrowed is paid back, plus the interest and the remaining value of the house would go in to the home owners estate.

It is something which people do so that they can get hold of some of the money form their home without losing everything. If the value of the property goes up, they will still benefit and there will still be equity to be inherited by the persons family.

It can be a way to get some money in later life without worrying about spending all of the inheritance. It is a way to make use of the money toed up in an asset that you would not normally be able to release.

Many people use it for emergencies when they do not have enough money to pay for things or to be able to give their children some of their inheritance early. It means that you can be more flexible, rather than waiting until you die for your assets to be sold and the money distributed. It is favoured over other similar schemes because it is not the full value of the property and so any gain in value of the property will still be applied. It means that the amount of money that is got out of the house, when it is sold will not be reduced significantly. In schemes where you borrow the full value of the house, when it is sold, the financial institution gets all of the uplift in price.

There are pros and cons of using this sort of scheme. Obviously it will allow you to have some extra money but you will pay interest for it. It is possible that you will get reduced benefits because of the money raised from this sort of scheme and the money raised is not as much as with other ones. The possible inheritance will be lower but it will allow you to protect some of the house so you know there will be some inheritance but you will also have some money to keep you going too.