A common situation that many retired Britons face is the struggle of living on a limited pension and personal savings whilst living in an equity rich property. Having cash tied up in your property instead of your pocket can be a frustrating situation but equity release plans could be the perfect solution to reversing the situation and freeing up your cash.
There are several reasons why individuals want to release equity from their property; perhaps to make improvements around the home, buy a new car, pay for a holiday or simply to make life more comfortable overall. You could even use the extra money to help family members climb onto the property ladder too. Equity release plans can be an easy way to essentially borrow money secured against the value of your home, with the debt being repaid from the sale proceeds after your death or entry into long-term care.
Equity release plan is an umbrella term for a variety of different schemes that provide you with options best suited to your own personal situation. You can generally choose from receiving a lump sum, a regular drawdown or even both. The lump sum can help you with any immediate plans you may have, whilst a regular drawdown could be just the boost you need to settle comfortably into your retirement.
A major benefit of releasing cash from your home is tax exemption. Any money released from your principle residence through an equity release plan is classified as tax free, which helps to increase the amount you receive a little bit further. It’s important to remember that if you were to invest any of the money you release, tax may be payable on any income or growth accrued.
Another important point to note is that with equity release, you can continue to live in your own home throughout the duration of the plan. However, releasing equity from your home could affect your tax position, your eligibility for means-tested benefits and ability to move or sell your property. It could also reduce – possibly to nothing – any inheritance that you decide to leave. You are also still responsible for keeping your home in good repair throughout the duration of the plan.
It is beneficial to explore other options before deciding to release equity from your home including downsizing to a smaller property or using existing savings and investments.
Indeed, many people have found equity release an effective way of releasing readily accessible capital from their home, enabling them to afford the life they want in retirement. Therefore, it may prove beneficial to investigate the options available to you and speak to a financial adviser to make sure you fully understand the features and risks of equity release.
This article has been written for information and interest purposes only. The information contained within this article is the opinion of the author only, and should not be construed as advice or used to make financial decisions. Expert financial advice should always be sought and any links contained within this article are included for information purposes only.
By: Victoria Cochrane
Posts Tagged Lump Sum
Many small business owners who are in need of financing do not realize the tremendous resources that are available at their fingertips. Those who own a home often have another type of loan available to them, the home equity loan or line of credit.
These loans eliminate some of the problems posed by collateral. If you own a home or part of a home, that ownership stake can be used as collateral instead. This has its pros and cons; it’s good because it is available to many more small business owners, but it could potentially become a problem if the borrower is unable to pay back the loan. In this case, the lending institution acquires an ownership stake in the home.
Home equity loans are generally available from banks in two forms-the traditional loan format and the revolving line of credit. The traditional bank loan form involves a lump sum, with interest payments made on the entire amount. The line of credit, on the other hand, essentially functions as a credit card does-your limit is tied to your home’s equity, and you only pay interest on the outstanding principal. Interest rates on both of these types of home equity loan are generally much lower than credit card interest rates.
The amount of money you can borrow with a home equity loan varies from bank-to-bank. However, most banks use a metric called the loan-to-value ratio. They measure the amount of debt you have against your home, and compare that to the value of the home. Banks feel comfortable loaning you money up to an 80% loan-to-value ratio. So, if you currently owe less than 80% of your home’s value, you can probably find a home equity loan to make up that remainder to finance your business.
By: Matthew Potter
There are many ways of getting loans. Some require you to pledge a valuable asset as collateral. This type of loans will not only grant you a large amount of money, but also charge comparatively low rate of interest. Your home equity is one of the assets that can be put up against these loans.
The equity of your home is its monetary value remaining after deducting any mortgage or claim upon it. For instance, if the real value of your home is £130000 and there is a mortgage of £75000 upon it, then your home equity is £55000. Loans which are secured against this market value are known as home equity loans. You can use for home improvement, auto financing, education or medical bills or a holiday. The choice is up to you.
Home equity loans are available under two schemes:
* Closed home equity loan- where the loan amount can be obtained as a lump sum and interest rate calculated according to this amount
* Home equity line of credit (HELOC) – where you can withdraw amounts as you need from an agreed sum of money. Rate of interest is calculated according to the withdrawn amount
Home equity loans come with their added benefits. You can take a loan amount up to 100% of the equity. The average range falls between £3000 and £100000. The repayment period can be extended up to 25 years. The interest rate is also low and tax deductible. You have thus an easy repayment arrangement that can be carried out in easy monthly installments.
Home equity loans are offered by various financing companies. Online mode will help you find the more profitable deals in a matter of minutes. Moreover, you can interact with your lenders from home with the processing free of cost and with less hassle.
The equity of your home can act as a savior when there is financial shortfall in your life. But do remember you are putting it at a risk. Therefore, exercise wisdom and prudence while choosing the loan amount.
By: Dina Wilson