Home sweet home and equity release by Laura Wilkinson
When pension returns are poor many elderly people may be tempted to look to “Equity Release”. Equity is the difference between the value of a property and the amount owed under any secured lending on the property. An equity release scheme is a way of unlocking the value of the equity in the property to produce a lump sum or regular income of both.
However, these schemes are not without pitfalls and a solicitor will offer advice and guidance upon the issues involved or will recommend that the client obtains specialist advice from an independent financial advisor or other expert.
Although there are many equity release products on the market the most popular are either home reversion schemes and lifetime mortgages. An owner sells all or part of his or her home to a company and in return receives a cash month sum or monthly income and can stay in the home for the rest of his or her life as a tenant paying nominal rent. When the property is sold (usually after the owners death) the company receives that portion of the sale proceeds relating to the share of the home sold. The remainder of the monies go to the tenant or if the tenant is deceased his or her personal representatives.
With a lifetime mortgage the owner is borrowing a loan against the value of the house and to defer the payment of interest whilst he or she lives in the property. The interest is added to the loan and is repaid when the owner dies or vacates the property.
Elderly persons should bear in mind that equity release schemes should be entered with caution and only after the receipt of expert and independent advice. The scheme may have an impact on other issues such as welfare benefits and tax planning and there may be other options available apart from equity release. All these will repay investigation.
Laura Wilkinson. Residential Property Specialist AMD
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