Equity release is an option for people who would like to benefit from some of the equity they own within their own home without actually having to sell their home to do so. It can be a good option as it can provide either a lump sum or an ongoing monthly income to people throughout their retirement which can be a stressful time as retirees adapt to a reduced monthly income. One such product is the Stonehaven Interest Select Plan mortgage.
However, equity release does have some negative aspects. The interest owed on the principal amount is rolled up into the amount and therefore over time the loan amount will increase substantially. At a time when house prices are either static or reducing in value then essentially the equity release scheme is consuming an ever greater portion of your property. Upon your passing away there may be very little left to bequeath to loved ones.
An alternative to this problem is the Stonehaven Interest Select Plan mortgage; it is like an equity release scheme in that it allows the customer to access equity within their home. However, it differs from an equity release scheme in that monthly repayments are made on the interest. This means that over time the balance of what is owed will not increase which is a major drawback of a traditional equity release scheme.
The Stonehaven Interest Select Plan is an equity release scheme which gives a much clearer sense of control and predictability. Customers know that the loan amount will not grow and therefore can be much surer about their financial situation and also what they can bequeath to loved ones.
While you are trying to understand the different advantages of these various plans it is a good idea to look at everything. So far you have learned about the traditional rollup option. You also know that interest only plans exist to make it easier to leave money to your loved ones. Now you should understand that you have three to four other options depending on the current market.
Besides the roll-up and interest only option stated above, you have the drawdown, enhanced, and fixed lifetime mortgage. A fixed lifetime mortgage means you and the provider agree upon a certain interest payment for the loan. It will be higher than average mortgages, but this is because you may have the loan for a longer period of time. It is all based on your life expectancy and when you may decide to pay back the loan. After all, if you take out a product at 65 and live in the same house till you are 99 there is a huge chance for interest to build.
Drawdown mortgages are different from standard options because they provide you with a smaller lump sum at the beginning. Even though you receive a smaller amount upfront you have the option of going back for more. You can withdraw money as you need it. This also means the interest is only charged on the money you use. If you do not use all the equity available to you it does not matter in terms of the interest. It matters for your family since they have a potential inheritance.
The enhanced lifetime mortgage is different yet the same. You have all the same interest situations in which it compounds until you make the payment in full at death or when you move out. The difference is that you can obtain the largest lump sum under this scheme because your life expectancy is less. The idea is that you have an illness or disorder that will end your life much earlier than the standard retiree. It sounds harsh, but in reality it gives someone with an illness the chance to enjoy life a little.
The last option to discuss is not a lifetime mortgage at all. It is still an equity release scheme though. It is a home reversion plan where you sell a part of your home or the entire house. You get money for this that is not paid back. It is the only other option that can pretty much guarantee inheritance remains in the home as long as you do not sell the entire home.
In order to fully understand the implications of an equity release scheme such as the Halifax or Stonehaven Interest Select Plan it is important to ask for a personal financial forecast of how the balance will grow over time. Also make sure you receive independent financial advice for your personal circumstances before committing to anything.