Over the last few years, there has been a rise in the number of people opting for equity release. The main reason for this is that these schemes provide a financial boost for those who have retired. This income is usually paid by either a tax free lump sum or regular income & can be used for any purpose. But while equity release schemes can be beneficial, there are a few things that they can affect.
The can have an impact on benefits – These benefits are state income such as pension savings credit, council tax benefits and pension credit which can all be affected by equity release schemes. In fact, drawing too much equity can result in a reduction of benefits. However, you can avoid this by having a certified equity release adviser such as Equity Release Supermarket run through the calculations regarding specific details.
Compounded interest – Starting an equity release scheme when you are 55 and living a long fruitful life could result in lack of equity in the property later on. This is because interest is added to the amount, which unlike a conventional mortgage is paid off. Therefore, with the interest rolling up will lead to an ever increasing repayment on eventual sale of the property. The good news is that this can be avoided through the No Negative Equity guarantee which must be prevalent in order for the scheme to be a member of the trade body - Safe Home Income Plans (SHIP). They insist that any equity release scheme provider MUST ensure the amount owed is never more than the home value.
A large lump sum – Most people prefer to take a large lump sum at outset of the plan. But you should be aware that the larger the initial amount, the more interest that will accrue in the long run. Fortunately, this can also be avoided if you consider a drawdown facility in the equity release schemes. This will enable you to take the equity release in smaller amounts as & when required. The benefit of this is that only as much as is required for the first 12 months need be taken. Consequently, less interest will be charged leaving a greater amount of equity for the future. This would not only benefit the plan holders as they will have more equity left in the property to potentially withdraw in the future, but also a greater inheritance for the beneficiaries.
Following these three points can make equity release schemes much better for homeowners who are short of income or have lump sum capital requirements.
If you have any questions on how equity release can affect means tested benefits or how drawdown equity release can benefit you please contact Mark on 0800 678 5159.
Alternatively, please email firstname.lastname@example.org.