In today’s society people are living longer than ever before. Many are finding it difficult to cover the costs of maintaining their home on a limited retirement income. That is the main reason that home equity release schemes were developed. It was one way for the elderly to remain residency in the homes they had owned all of their lives.
The term equity pertains to the value we have in our home minus any monies left owing on the mortgage. If you are fortunate enough to have your mortgage paid in full than the equity in your home would be its entire value. Depending on the size and location of these homes, a person could potentially be living within four walls that have a value of thousands of dollars.
Unfortunately there are many elderly persons that failed to plan ahead. Maybe they just never stopped to realize that they would live to such an age where they would outlive their income. Little by little their savings dwindles away and they are left with no more than a meager monthly income. The elderly, and occasionally the disabled, are left in a position of paying their bills or putting food on their tables.
Man has accomplished many things in history. We have put a man on the moon but the probability of living comfortably in retirement still eludes many. This is seeing many taking advantage of a lifetime or reverse mortgage, even when it is something they would rather not do.
The way that it works is quite simple. A bank or mortgage company will place a monetary value on your home. Over an extended period of time, the bank and/or mortgage company will allow you a monthly stipend that you basically are borrowing from them using your homes value or its equity as collateral. The financial aspects of terms such as this can be very complex and no one should enter into these schemes without the benefit of council. The entire proceedings could be a financial windfall in one respect and be a financial ruin in another. There are many things to consider.
The lifetime mortgage supplies the homeowner with funds that will supplement their income and allow them to remain in their home. The funds can be transferred to the owner in one large amount or paid out over time as a once monthly stipend. On the demise of the owner, the property is sold, the lender paid back his investment, and any proceeds will be inherited by the estate.
The lifetime mortgage is relative to the reverse mortgage or the home reversion mortgage is it is sometimes called. These mortgages have one vital difference. The lender will ask you to sign over your homes title to them. The lender will be the seller when the time comes with the family having no say in the selling price. The lender has complete control.
The cons in both of these instances is that the homeowner is often left with very little, and in some cases nothing, to leave to his descendants in the form of an inheritance. Money coming into the home through these plans, will increase the income of the owner and government stipends can be lost due to this extra income. There can be excessive fees applied if the loan is paid off in full.
If you should befall financial hardship due to lack of income in your later years, please heed the advice of a financial expert before doing anything. There may be other options that you can consider. If a home equity scheme is the only choice open to you, an adviser will aid you in figuring out how much of your home to give up and how much you will need to live a comfortable life.
The money released could be in the form of a tax-free lump sum, or a regular income, or a combination of the two. Equity Release Schemes There are of course some disadvantages to everything, and equity release is no exception. There are three guarantees from all SHIP members.
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