Equity release schemes can be beneficial for those retired individuals who suit the old adage where ‘asset rich but cash poor‘ features in so many circumstances.
Throughout one’s life we have many financial demands to fulfil including buying that first house, holidays, bringing up the children & financing through school then university. There’s the ongoing home improvements, weddings & christenings & then the when you think its time to look after no 1, there’s the grandchildren!
It would seem that personal finances never get chance to take a breather!
However, this is all well & good whilst in continuous employment, as these expenditures can be funded out of regular income.
But how can one maintain these ongoing costs once retirement is reached?
Many people do not realise or make enough financial provision via pensions or alternative retirement funding schemes as to how much money will be required to fund the remainder of their years. Afterall retirement is effectively the longest holiday of your life.
We all know how much we spend on a short break holiday; consider how much this is likely to cost should this holiday last 20 years!
Average life expectancy has increased significantly over the last few decades, so as we live longer the greater the financial pension fund that is required. So can one really expect to be able to meet the financial needs of forthcoming retirement years? If so how can one fulfil this?
With lenders being few & far between in their numbers post retirement, how does one meet the potential shortfall that will inevitably exist for most of state pension age?
Well for the typical retiree, who has experience all the aforementioned lifestyle issues then equity release potentially could lead you into a financially secure future.
There are two main types of equity release schemes – lifetime mortgages and home reversion plans. Of these this article concentrates on lifetime mortgage schemes.
Lifetime mortgages are special kinds of mortgage plans that are beneficial to individuals who are over 55 (for joint applicants, both should be more than 55 years of age). This is the most popular form of equity release & accounts for almost 90% of all equity release plans taken out. The reason is their flexibility & the fact the property will always remain 100% in your own name. This is important for many people whom have worked hard to build up towards their greatest asset, their home.
With a lifetime mortgage, you get a secured loan which you can either take as an initial lump sum or ad-hoc withdrawals in the future whenever they are required. Interest accumulated on the loan will be rolled up over your lifetime until death or moving into long term care. At that point the property is sold off by the executors of the estate which they have between 6-12 months to complete this process of paying the redemption figure back to the equity release company.
Advantages to Lifetime Mortgages
Lifetime mortgages do not require you to make any monthly payments unlike other mortgage schemes. You can spend your money the way you want & be flexible in the withdrawal of the tax free cash. This is facilitated by the equity release drawdown plan that enables you to take cash lump sums from a reserve facility as & when its required.
The main advantage of drawdown is that you are only charged interest on the amount actually taken. Hence, whilst money is still sat in reserve with the equity release lender, you are not charged interest on this portion. This removes the necessity to take a large initial lump sum & have it languishing in the bank or building society at an interest rate that is lower than that being charged by the equity release plan itself.
If any of the issues above feel of relevance to you, feel free to give the Equity Release Supermarket team a call to discuss the ways in which equity release could may be assist your retirement.
t: 0800 678 5159