Equity Release Schemes
Since first offering equity release schemes, I’ve often been asked, “How do I/we know if an equity release scheme is right for me/us?” This is a question that has a different answer for different people. I always start with the same first response, “The first thing I would recommend is that you seek the guidance of a qualified independent financial adviser and preferably one that specialises in equity release schemes“.
After having given that advice, I am only too happy to go through the circumstances for the individual borrowers and give them their options.
Equity Release Schemes are not an Inexpensive loan
The loan fees from most equity release scheme providers are typically around £600 plus there is compound interest on the loan, the current interest rates range from around 6.25% to 7.25% depending on the provider and the size of the loan you are trying to raise.
Then there are legal costs which normally cost around £500. If you use an independent financial adviser then there will also probably be an advice fee, typically around £795
So now that you know what the costs are, how can you decide if you should go ahead with an equity release scheme? If you’re a homeowner with little or no mortgage, ask yourself the following questions:
- Do you find yourself short of funds every month?
- Do you wish you had money to repair your home but don’t want to or can’t borrow and make payments?
- Are there rising medical costs you can’t quite cover and your insurance doesn’t cover them either?
- Are you making a monthly payment that is keeping you from being able to live your life as you would like?
- Do you wish you could travel, or help a loved one through their education but you just don’t have the funds in the bank to do so? Equity Release Schemes could help!
If you answered yes to any of the questions above, it may be time for you to put your home equity to work for you with an equity release scheme.
I have seen a lot of good that equity release schemes have done for retired homeowners. I’ve seen them change lives and living situations for the better. I’ve seen people come out of foreclosure with an equity release scheme and never have to make another mortgage payment.
Equity Release Schemes – Right or Not?
But is there a time when equity release schemes are NOT right? Honestly, YES!
There are a few examples I can think of off the top of my head for which I would advise a homeowner not to get an equity release plan. Equity release schemes are not inexpensive, if you did not intend to occupy the property much longer, that is, you thought you would move soon, I would advise against an equity release scheme unless it was the only alternative you had to keep your home out of foreclosure in the mean time.
Some married couples have one borrower old enough to take advantage of an equity release scheme but the other spouse is too young. In this instance, I see them wishing to take the younger spouse off the title to release the equity. I don’t recommend this unless the older spouse is adequately insured so that if the older spouse passes away, the equity release scheme can be paid in full.
If not, the loan would be due and payable, and even if the younger spouse was now old enough to qualify for an equity release scheme, chances are pretty good that he/she would not be eligible for a high enough loan amount to cover the old balance left by the equity release scheme from the passing older spouse that has accumulated compound interest. In this case, if the younger spouse did not have adequate funds from another source to pay the loan in full, he/she would be forced to sell the home and would be displaced.
There is no income qualification for equity release schemes, however, if you know that even with the relief you gain from an equity release scheme you cannot afford the taxes, insurance and upkeep on your property, then I would suggest you look at other alternatives. equity release schemes require that the borrowers still pay all the taxes, insurance and maintain the property in reasonably good condition.
If your monetary needs are temporary, then the costs of equity release schemes may not make it the best option.
Finally, if you don’t really need an equity release scheme and someone is trying to talk you into one, then talk to your trusted family members or an independent financial adviser.
It could be that the person trying to convince you is looking out for your best interests and wants to see you more comfortable or prepared for future events, or it could be that they have other motives and you need to really look at your circumstances and determine whether a equity release scheme is right for you.
M Bradley
Managing Director