Equity release is a term used in business circles to refer to various ways in which you can turn your own main residence into a means of raising much needed tax-free cash. It can involve taking a “mortgage” against your own house or any other property that you own. This scheme is especially beneficial after ceasing employment when the previous sources of income have disappeared and now need replacing to provide a comfortable retirement.
Equity release is therefore, the equivalent of taking a bank loan without really visiting the bank and then having the pleasure of repaying at your own convenient time… usually upon your demise. However, newer flexible equity release schemes have now come into play, where you can control the future balance of your lifetime mortgage arrangement. But the overriding initial equity release question has always been - What is the maximum equity release I can obtain & which type of plan offers the largest cash release?
Introducing the Enhanced Equity Release Scheme
Enhanced lifetime mortgages are a modified equity scheme specially tailored for people who are at an advanced age or are terminally ill or are in a very poor state of health which may render them incapacitated within a very short time.
Providers of such a scheme will assume that the beneficiary may not have a long time to live and hence may consider it a good piece of business since they are likely to get a return on investment quickly when the beneficially dies soon after subscribing to the scheme.
Types of Enhanced Equity Release
When thinking of which equity release scheme will get you the most, keep these three basic types in mind:
In this plan, a retiree who owns property takes the scheme (cash) and retains ownership of the property until that time when he dies. During the period of the loan, the homeowner will manage the plan by choosing either to not pay anything back, or make repayments which has the ultimate bearing on any inheritance. Upon death, or moving into long term care, the beneficiaries of the estate then sell the property in order to repay the equity release company who leant the oney in the first instance. This will comprise of the original loan amount together with the interest accrued for the duration of the facility.
| Interest Only Lifetime Mortgage
This is a form of lifetime mortgage designed for retirees with good disposable incomes & which to maintain a level balance & protect the equity in their homes. This is where the homeowner takes the equity release scheme and only the interest charged is payable periodically for the entirety of the plan. The principal is repaid by selling the home when the owner dies, or moves in the future. The equity release interest rates obtained largely depend on the service provider you choose and the intermediary you use to process your application. Interest only lifetime mortgages have become the savour of many retirees who have held mortgages in retirement & found their traditional lender inflexible in extending the term upon review. The interest only lifetime mortgage has become the saving grace for many to remortgage to & thereby obtain a mortgage that can run through the remainder of their retirement.
These are the original form of equity release & developed by Hodge in the 1960's. This is the plan where the beneficiary forfeits part of or the whole of his house to the home reversion provider, with the tax free cash amount depending upon how much, or little is sold to the reversion company. The home reversion scheme is now very uncommon and the reason being they are not as flexible as lifetime mortgages & many people do not like the idea of having to share ownership of their own house. However, there are some advantages to home reversion plans; you can leave a guaranteed inheritance and at the same time they continue to live in the same house for as long as they like, secured by the arrangement of a lifetime tenancy agreement.
Benefits of Enhanced Equity Release
The main benefit of taking an enhanced equity release plan is the size of the loan taken. The retirees usually gets a larger benefit because the worse the health sitaution is, the greater the tax free cash becomes, plus they retain 100% ownership of the property.
The beneficiary therefore has more cash than otherwise have been which can be spent in any way he likes, unlike what he receives from his pension scheme which may be too little to make a meaningful investment.
The terminally ill can use the cash for palliative care so they do not have to be wholly dependent on others. It is to be assumed here that such terminally ill people will get fairer deal since the service provider will wait a shorter time to recover the investment compared to healthier people.
Enhanced Equity Release Calculator
This is a tool that is used by potential beneficiaries of enhanced equity release to calculate their financial net worth in terms of the equity value available within their property. It gives an approximation of the enhanced tax free cash sum a potential beneficiary would get from the any equity release scheme provider. They should always be used as a guide primarily, which upon further analysis with your local independent equity release adviser, can then become reality & application commenced.
How an Enhanced Equity Release Calculator Works
First, the individual who wants to benefit from this scheme must have attained the mandatory minimum retirement age (55 years in most of the countries). The more advanced in age the individual is the higher the chances of him/her getting a better deal so it’s wise that a person goes for it at an advanced age.
Secondly, the person must include all the details regarding their health status, and might even attach any available medical records. This will help the scheme providers to make an estimate on how much the client can get. The worse the health situation appears, the more the applicant gets.
Finally the person must factor in the property value as accurately as he can without overpricing. It is good to remember that the actual income he gets will mostly be pegged on the house value, other considerations notwithstanding.
Getting the Most from Enhanced Equity Release
If a person is elderly, or is in such a bad health status that they feel they are living their sunset years, then it is advisable to go for a scheme that gives him a maximum cash in lump sum shoudl timescales be limited. This way, he will get maximum benefits before they “exits the scene”.
Choose a scheme that gives you maximum rewards, but at the best equity release interest rate. There is no point in throwing away everything you have worked for to a greedy lender. In this case a scheme that gives you cash and at the same time allows you to live in the comfort of your lair for as long as you want would be more beneficial to a person. Secure the optimum amount required to complete your objectives & dependent upon your attitude to risk, take the right equity release plan with the best features for you.
Choose the scheme at an advanced age. Enhanced providers start offering enhanced equity release schemes at age 55 and will automatically assume that you do not have long to live though they will ask for you to complete a health & lifetsyle questionnaire prior to application. This will ensure that you will receive the best deal during negotiation, based on your medical records.
Finally, it is good to seek the advice of independent equity release experts, preferable members of the Equity Release Council & FCA authorised, on how to get the best deal for your requirements. For a specialist enhanced lifetime mortgage adviser call 0800 678 5469.