If you are above the age of 55 and are a UK homeowner, you could benefit from a home equity mortgage where you get the money in the form of a monthly payment, lump sum or a combination of both. The good thing is that the money raised through equity release is all yours and what you do with the cash is totally up to you. Moreover, the money is tax-free and you can spend it on anything you like including going on holiday, home improvements, improving your lifestyle and also the chance to clear your mortgage among other financial worries.
Reasons to use Equity Mortgages
One of the most popular reasons why people choose equity release is to do home improvements. So for instance, you may want to build a conservatory, fit in a new kitchen, or building an extension among others. This reason in particular makes the home equity mortgage very attractive as you use the money to improve the very space you are living in whilst increasing the property’s value. Retirees desire to continue living in the same kind of comfort as they did while they were still working, which means that doing home improvements allows you to live in luxury in your retirement years.
If you have not already cleared your mortgage, you can use the funds to do so now. Most importantly, you will have more money in your pocket as you will not be making any monthly mortgage payments back to the lender. This will certainly affect your disposable income positively. If you desire to move houses or location, this could also allow you to upsize or move to a quieter location and still be able to take care of the deficit. As most people spend most of their lives working, raising a family and paying bills, a home equity mortgage will allow you to enjoy added luxury, and anyone would want a comfortable retirement anyway.
You can use the money to mitigate your inheritance tax liability. House prices have risen sharply in the recent past, meaning that most homes today fall within the government’s treasury department by the time they pass on. Taking up equity release allows one to reduce the amount of income tax they have to pay.
Lastly, you can use it to help family members pay off their own debts. Limited pensions and the ease to obtain credit means that many people have found themselves debt ridden, or wondering how to pay their regular bills. If you have a family member in such a scenario, you can use the money to help them out and make their lives much more enjoyable.
The Process and how it Works
While you have plenty of reasons to take out the equity release mortgage there are also important factors on how it works that you should learn.
• The mortgage does not require payments if you choose a lifetime mortgage, unless you choose an interest-only lifetime mortgage. The interest only lifetime mortgage requires you to pay the interest that accrues each month for the term of the mortgage, your life. The balance thus remains constant.
• To repay the mortgage you either have to sell your home or find funds that will cover the entire mortgage amount. This could leave your home in the clutches of a new owner unless your family has the funds to pay off the mortgage in full including the accrued interest.
• Another repayment option is to have a life insurance policy that covers a mortgage payment in full.
• There is an APR that accrues for the length of time the mortgage is outstanding even though you are not making payments.
Based on these caveats it is important that you use any remortgage option wisely. Going on a holiday that is excessively expensive could cost you your home, while helping to pay off other debts or improve your home for a better sale value is a wiser decision.
If you do not like holding a mortgage in your later life, where in particular the balance can be seen to increase on each & every annual mortgage statement you do have an alternative. The alternative is to consider home reversion plans where you sell a portion of your home to a lender and live in it rent free for life. You have money to use, but you do not have to pay anything back in the end. You simply sell the rest of your home. This only works if you are not concerned over losing your home and you are over 65 years of age.
Why Home Equity Works
Home equity mortgage options ensure you have money to live your life in comfort and there is every chance that you can pay the funds back at the end of your life through insurance or selling the home when you move. They offer peace of mind for those who may have not been fortunate enough, for one reason or another, to save sufficiently for their retirement. Afterall, retirement is a long holiday and doesn’t come cheap!