May 19, 2012

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Internal Improvements

Equity release explained

It’s becoming increasingly popular for older people to free up disposable cash through an equity release plan on their home. You can get money to spend from the value of your home, without needing to sell up and move somewhere smaller.

However, you should understand how the system works before you sign up to a plan. These are lifetime commitments and it will affect your estate after you pass away.

There are four main types of equity release schemes from Age Partnership, an independent company that searches the equity release provider market on your behalf to find you the best deal. Each equity release scheme works in a slightly different way:

Lifetime mortgage – this is where you take out a tax free lump sum against the value of all or part of your home, having deducted the amount owing on the property through a current mortgage. You have cash to spend as you please, and the amount owing is only repaid when the property is sold after your death. There is also the interest for the length of the loan period to be repaid.

Interest only lifetime mortgage – this works in a similar way to the lifetime mortgage, but you pay the interest off in regular instalments so that the amount owning remains constant. This way when you die and the property is sold, it’s only the amount borrowed that will be repayable.

Drawdown Lifetime Mortgage – again this is similar to the lifetime mortgage but you can choose when you release the cash rather than taking it as a lump sum. There is more flexibility here, and less interest payable, as you only pay interest on the amount withdrawn.

 

Home Reversion Plan – different from the other forms of equity release as you sell a portion or all of your home in exchange for a lump sum of cash. There is nothing to pay back and you have the right to remain in your home (rent free) for the rest of your life. The plan provider realises their investment after your death when the property is sold.

 

To find out more, look at the Age Partnership equity release guide on the agepartnership.co.uk website.

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