Equity Release Mortgages Explained
Posted on 12 February 2010
Equity release mortgage are almost like simply taking out another mortgage but with a few crucial differences. They are categorized under two main headings of the Lifetime Mortgage and the Reversion Plan, however the first has another, more flexible system involved called the Drawdown Plan.
The Lifetime Mortgage and Drawdown Plan are based on having an assessment done on the value of your home that you own. An amount is calculated using this plus your age which is then given to you either in the form of a lump sum or a regular income. The only different that the Drawdown Plan presents is that while you are given the money, you only take it as you need it, so if you don’t use the whole amount, you do not owe it in the end. You do not have to make monthly payments as the financial institute will recover the loan funds when the house is sold whether it is after you pass away or when you move to a long-term care facility.
The Reversion Plan is not a loan, but requires you to sell your property or a portion of it to receive this money. You are still permitted to live in the residence without paying any fees. Anything owing at the end will be taken once the rest of the property is sold depending on the arrangements with the financial institute. This plan generally gives you more money but it is irreversible.
These plans are considered long-term financial solutions but they are not for everyone. Before signing any contract, you should do plenty of research and only deal with the firms that work with Safe Home Income Plans (SHIP). This is an organization that makes sure that all plans are legitimate and working with the ‘no negative equity’ guarantee. This means that you will not owe more than what your property is worth. In the past, some firms were giving deals with high interest rates that meant the loan exceeded the value of the home, but that is no longer allowed.
You should always seek the advice of a professional who deals with equity release mortgages on a regular basis. They will explain the advantages and disadvantages of each plan to you in regards to your own situation. Every person is different and has different needs which is something that they are accustomed to and will be able to help you no matter what background of financial history that you have.
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