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There are many different ways to raise some money in retirement from releasing equity in your home. An interest only equity release mortgage is becoming a popular option for those people who have a good retirement income but need a lump sum of money.
In this scheme you will be able to borrow a lump sum of money in the same way that you would with a mortgage. You will then be charged interest each month. You will pay back the interest owed. Then when you no longer need the house and you decide to sell it, the lump sum will be paid back before the rest of the equity is paid to those inheriting money.
This option is really good if you want to get a lump sum of money. You may need this to pay for a holiday, repairs on your house or perhaps to give away to children or grand children that are in need of help. It can be frustrating knowing that you have capital tied up that you cannot get hold of and so this is a great way to release it.
The advantage of doing it this way is that there will be no costs to be paid after you die. You will have paid the interest on the mortgage and so when the house sells, there will be no additional fees, just the lump sum to pay back.
Another advantage is that you can use any type of mortgage rather than just looking at equity release ones. You do not need to be so limited in your choice and that means that you are more likely to get a better deal, something that is more competitive. You will also have the option of being able to borrow more in the future or even going for a reversion scheme.
This can be a more satisfactory and flexible approach for those with a decent retirement income. However, it is important to make sure that the interest will always be affordable. At the moment interest rates are low and so it can seem that it is a great thing to do. However, imagine how you might cope when they start to rise. They have been as high as 15% in the past and are only 0.5% at the moment and so the interest only payment could significantly increase in the future. Make sure that you will still be able to afford the payments if this does happen.
At the moment, with interest rates low, fixed interest mortgages can seem expensive. You so have to be a bit of a fortune teller to work out what interest rates might do in the future as well. However, there are advantages to a fixed rate mortgage.
Many people like the stability of having a fixed rate. They are able to work out exactly what they will be paying each month. For an equity release mortgage, this can be really important. This is because you will be having a fixed pension income in each month which you will be using to pay the interest on the mortgage. If this mortgage interest goes up too high, you may find that you cannot afford to pay it any more. This would not be a good situation to be in.
With a traditional mortgage, a variable rate suits many people because their salaries will increase when interest rates go up and so they will have more money to pay for the interest. However, pensions do not always increase in line with inflation and so if the interest rates go up, you will still have the same fixed income to pay from. Therefore having a fixed rate mortgage could be very helpful.
It could give you a great peace of mind as well, knowing that you will not have to pay a different amount of interest on your mortgage. However, like mainstream mortgages, the fixed rate period may not last for the whole term of the mortgage. This means that eventually you may have to go on to a variable rate.
It is also worth noting that you can fix the period of the loan as well. You can decide to repay it within a certain period in the same way you would with a normal mortgage. If you have a significant pension income, you could be able to save up enough to repay it or you may be using the money to help out children who might pay you back before the term is up.
The type of mortgage you go for is obviously something you need to think about really hard. Think about the pros and cons of each type and then predict what might suit you the best. Consider the income that you will be getting during retirement and whether it will be enough to afford the interest that you will be charged.
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.
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.
There are a lot of people that like the idea of releasing equity in their home. It is something which can bring in some much needed income. However, it is something which is not an option for everyone.
It is something that is designed for people who have paid off their mortgage. So you need to completely own the house that you live in, to be able to use the scheme. You will also need to have a house worth more than £80,000 in many cases, although there may be some exceptions. You will be able to get a lump sum, which will be paid back when you no longer need the house and will be able to continue living in it, as long as you need to. Once the house is sold then the bank will take what is owing to them and possibly also the increased value of the property too. It all depends on the agreement that you have with them.
There are different types of equity release and so this may effect whether you are eligible for it. Some are like mortgages and you may need to still be working or have a good income to be able to use them. Others do not require this.
It is worth remembering that you need to apply to a bank for these and you may not be accepted. The financial institution will need to guarantee that your house sells after you die or go in to a care home because they will want to get their money back. They will therefore only take on a property that they see as a good investment. However, there are a lot of companies offering this sort of finance and so if one turns you down, then it is worth approaching another one.
Therefore, you are not guaranteed the chance to release equity in your home and do not assume that you can. You will need to have paid off the mortgage and have a property that is attractive to a lender. You may also need to have good financial prospects yourself, depending on what type of scheme you want. The less money that you want to borrow, the easier it is likely to be to find a financial company that will be willing to lend you the money and be able to help you out.