Equity release is a way in which homeowners can cash in on the equity that is already invested in their homes. This allows for many borrowers to maintain a steady stream of income by using the equity in their homes. There are several different equity release options available to consumers. Each one has benefits as well as drawbacks as to their usage. Since every situation is unique, consumers are urged to choose the option that is best suited to their situation. The three most prevalently used equity release options are Home Reversion plans, Lifetime Mortgage Plans, and Shared Appreciation Arrangements.
Home Reversion Plans allow for the borrower to sell all or a percentage of their property immediately and in return receive a tax-free cash payment. This is partnered with a legal arrangement that guarantees that the borrower can stay living in the house without having to pay rent. This arrangement is allowed until their death. There are qualifications for this equity release option. The borrower must be over the age of 65. The amount of the cash payment will vary dependent upon the sex and age of the borrower, though almost all payments are approximately 35% to 66% of the property's value.
Another kind of equity release option is the Lifetime Mortgage Plan. Under this kind of plan, there are three variations, but all of them allow the homeowner to keep owning their home and borrow a certain percent of the property value.
The three variations of a Lifetime Mortgage Plan are Roll-up Cash Lump Sum, Roll-up Drawdown, and Interest Only Lifetime Mortgage. Roll-up Cash Lump Sum allows the homeowner to borrow a designated percentage of the property's value without having to make any monthly installments. The second kind of Lifetime Mortgage is a Roll-up Drawdown. This variation allows for the borrower to be given a number of smaller cash payments over a period of time. The third variation of the Lifetime Mortgage Plan is an Interest Only Lifetime Mortgage which allows for the borrower to get paid a lump sum amount and then pay interest on that loan each month. Therefore, this plan only works for those individuals and families that have a steady source of income and are therefore able to make monthly payments.
Because there are so many options for equity release, it is increasingly more important for consumers to research which scheme works best for the designated situation. There are several individuals who have found each plan to be successful and beneficial to their financial security.