For people on fixed incomes, it can be difficult to find the money needed to fund expensive home repairs. However, without performing these repairs, it can become dangerous for them to live in their own home. Some seniors may want to make repairs to get as much money as possible when they sell their house. Fortunately, they can get money for these repairs by taking advantage of equity release schemes.
What is Equity Release?
Most people who’ve owned their house for several years have equity built up in it. However, to get access to that money, they must sell their home and pay off anything they may owe on it before they can access any funds. Homeowners who are at least 55 can get access to the equity in their home by taking out a loan, or lifetime mortgage, to release it.
By taking out a lifetime mortgage, you can stay in the house and use the money anyway you wish. The money can be used to make repairs to the house, take a long holiday, or pay for your children’s education. However, to avoid risking your entire estate when the loan is repaid after your death, you need to determine how much of a loan you can afford to take out.
Determining Loan Amount
To help determine how much of the equity you can release from your property, most companies offering equity release schemes will have a lifetime mortgage calculator on their websites. By putting in information about your property, the amount the company is willing to release will be calculated, along with the amount your home could be worth in the future. You need to determine how much you should take out to avoid risking the investment you’ve made in your property.
The interest rate on the loan will not change throughout the life of the mortgage, which is why it is referred to as a lifetime mortgage. As with any loan, however, the longer the terms, the more interest will accumulate and be owed on the loan. However, the lifetime mortgage doesn’t need to be paid back until the homeowner dies or they move into a long-term care facility.
When the homeowner dies, the loan is repaid after the house is sold and anything that remains after the debt has been settled will be put into the deceased’s estate. For many seniors, an equity release scheme may be the only way they can get the funds to repair their homes, pay bills they don’t have the money for otherwise, or bolster their pensions. While a lifetime mortgage is tax free, it can change your tax position because the value of a house is often reduced when the owners take advantage of an equity release scheme.
Before contacting companies which offer lifetime mortgages, consult a financial planner or an accountant to find out if the scheme makes financial sense for you. In some cases, the scheme’s drawbacks may not be worth the monetary gain, but for many seniors, an equity release scheme can be beneficial for them.