Equity release offers a lifeline for hard-up retirees or an early inheritance for your children. If you’ve been looking forward to becoming another Liliane Bettencourt (former CEO of L’ Oreal), with a million-dollar beauty line but don’t have the funds needed, then this mortgage scheme can be the financial grace you require.
In fact, according to research, tens of thousands of older couples are today tapping into the wealth that’s built up in their estates. More than 30% of these pensioners are turning to equity release schemes as a way of financially helping out their families in the short-term, 20% are using it to pay for their long-term care, and 40% are using the heaven-sent mortgage cash to fund their lifelong dreams. So, if you’ve been trying to look for ways to finance your business dream, here’s a brief guide on how equity release plans work.
Understanding the Equity Release Mortgage
Equity release is typically a mortgage plan that allows you to unlock the capital tied up in your estate by turning it into a cash lump sum or drawdowns – monthly income. It’s open to homeowners aged 55 and above. It’s also for those with homes worth more than €70,000 and within the remits of the UK.
Rather than getting a loan to purchase a home, unlike standard mortgage schemes, an equity release firm hands over a significant amount of cash to spend on whatsoever you wish, and you don’t have to repay the capital until you die or move out permanently.
There are two primary forms of equity release plans – the lifetime mortgages and the home reversion plans. The most popular is the lifetime mortgage is a scheme that lets you unlock the capital from your house. You repay the loan amount plus the interests accrued overtime when you pass away or move into residential care. However, due to the current financial climate, more and more equity release providers are offering clients options that allow you to pay up your interest rates earlier so that you can only pay the initial amount when the loan term ends.
The home reversion, on the other hand, allows you to sell all or a part of your estate to the plan provider and you get to repay the mortgage when you die or move into permanent care. You continue residing in your estate rent-free for the rest of your life, but you will be selling your residence for a discount that’s far less than it’s actual worth.
Unlike the lifetime mortgage option, a home reversion isn’t a loan, so you don’t pay any interests or repayments. Instead, the lender benefits from their share of your estate when your home is sold after you pass away or get into long-term care facilities. The plan also allows you to ring-fence a part of your property for inheritance.
Equity release schemes are some of the best inventions by man, especially since you can spend the capital as you wish. So, take it out and start producing your lipstick or mascara line. What’s more, you can even get some extra cash to allow you to take a visit to Korea and check out some beauty industries and see how these products are manufactured. However, as the Equity Release Council advises, before taking this plan out, ensure that you visit an independent financial advisor for the best advice. You might also benefit from checking out if there are other alternatives like buying an annuity or downsizing since taking these mortgage plans can cost your family inheritance.
If you’re sure it’s what you need, though, don’t look back. Get that cash and make that ‘dough’!