Equity Release Uk

For retired people over the age of 60, an equity release plan is an excellent way to improve their quality of life. Equity release plans allow retirees to tap into their equity in their homes while also ensuring that they will be able to remain in the home for their entire life.

Another way of looking at an equity release plan is that it is a reverse mortgage. In a mortgage, the homeowner borrows a lump sum of money to buy a home and pays that debt off over a period of years. With an equity release plan, the homeowner receives a portion of the equity in their house which is then paid off when they move out of their home. The money can be disbursed either in a single lump sum or as a monthly payment over the remainder of the homeowner’s life.

A key benefit of an equity release plan is that it is tax free. Although one is receiving either a lump sum or monthly cash payment, is is produced by increasing one’s level of debt. As such, it is not taxable income. This debt also reduces the size of the homeowner’s total estate, reducing the total amount of IHT that may need to be paid on one’s estate after death, as well. Furthermore, an equity release plan does not need to completely eliminate one’s equity, which means that a portion of one’s equity could be left over to help out one’s heirs after death.

There are a number of different types of equity release plans, all of which have different benefits and tradeoffs. One of the simplest and most popular plans is a lifetime mortgage. In this, the borrower receives a lump sum which is usually less than 50% of the value of the home up front. Interest accrues and is added on to the loan’s balance over the rest of the borrower’s life and is paid off upon the borrower’s death or move-out. These plans typically carry a fixed interest rate and are made by Financial Services Authority-regulated lenders. Using an interest only mortgage is another option which can preserve equity. In this type of equity release plan, one takes out a lump sum interest only mortgage and actually makes monthly payments until the loan is paid off by the property’s sale.

The plans represented here merely scratch the surface of the different types of equity release plans available to homeowners in the UK who are looking to supplement their retirements. When selecting an equity release plan, one should work closely with a financial advisor to understand which option is best. In addition, because it affects the borrower’s total estate, they may also want to discuss their choice with their heirs. Within these provisos, though, an equity release plan can be an excellent way to stretch today’s limited pension incomes.