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How Equity Release Schemes Could Help You Finance Your Retirement

If you want to raise some extra cash for your retirement and you own your home outright, an equity release scheme could be an option that you could consider.  But what are equity release schemes and could signing up for one be right for you?  Read on for a basic guide.

What are equity release schemes?

Equity release schemes are designed to help older homeowners free-up some of the equity held in their property and convert it into ready cash.  Depending on the nature of the scheme, you could choose to have one lump sum to spend as you wish, you could draw a regular income from your property's equity to top up your pension, or you could opt for a combination of the two.

If you have dependents, it's important to note that the equity release scheme providers will be entitled to a portion of the proceeds of the sale of your home in the event of your death.

There are typically two types of equity release schemes.

Lifetime mortgages

Lifetime mortgage schemes let you borrow money secured on your property, without the need to make any repayments to the lender during your lifetime.  The property still belongs to you and you can continue living in it, although the lifetime mortgage must be paid off in full if you decide to sell your home, move out, or die.

The amount you can borrow will be calculated on your age and the current value of your home.  Interest is charged on the loan and rises incrementally in line with the term of your mortgage, increasing the final repayment figure.  Bear in mind that property values fluctuate, and you could finish up with a negative equity situation at the end of the loan term, meaning that there might not be enough equity in your property to pay the loan off in full.

If you were to die before the end of the loan term, the proceeds of the sale of your house would go towards paying off the balance in full.  In the event of a shortfall, the proceeds of your estate would be required to pay it.

Home reversion schemes

Home reversion schemes entail selling a portion of your home to the lender, usually at a much lower rate than the market value of the property. 

You would be able to live in your home until you died.  On your death, the lender would recoup their percentage of the proceeds of the sale of your house, before the remainder is passed to your beneficiaries.  

In conclusion

Equity release schemes can be a perfect solution if you own your own home and want to raise some cash for your retirement.  Have a chat with your financial advisor to find out more about what schemes are available and which would best suit your circumstances.