Equity Release enables homeowners aged 55 and over to release money from the property they live in without having to make any monthly repayments. There are two types of equity release; Lifetime Mortgages and Home Reversion plans. Within these two categories, there are many different options available and it is important that your current and future needs are matched with the right type of Equity Release plan, which PAD Financial can help with. Both Lifetime Mortgages and Home Reversion plans are regulated by the Financial Conduct Authority. By using an Equity Release product, a home owner can draw a lump sum or regular smaller sums from the value of their home, whilst remaining in their home.
Equity Release can play a crucial role in retirement funding and allow you to release the wealth tied up in your property to allow you to better enjoy your retirement. In certain circumstances, an Equity Release loan can also potentially be used to repay an interest only loan. PAD Financial can provide you with the information you (and your family) need to decide on whether an Equity Release loan is right for you. As specialist advisers, PAD Financial can help you understand the steps involved and talk you through your options, the effects this might have on state benefits and tax and your obligations.
In today’s equity release market there is a range of products to choose from, with new and innovative products being created regularly. This means that whatever your equity release needs, there is likely to be an Equity Release plan available to meet them.
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A Lifetime Mortgage involves taking a type of mortgage which does not require monthly repayments, although with some plans rather than roll up the interest you can opt to make monthly repayments if you wish. You retain ownership of your home and interest on the loan is rolled up (compounded). The loan and the rolled up interest is repaid by your estate when you either die or move into long term care. If you are part of a couple, the repayment is not made until the last remaining person living in the home either dies or moves into care, meaning that both you and your partner are free to live in your home for the rest of your lives.
If you take out a Lifetime Mortgage, you can decide to receive your funds in a lump sum or in smaller, regular amounts. Depending on the maximum limit of the product, there may be an option available to increase the amount you have borrowed as and when you want to, up to the maximum limit agreed with the plan provider. You can also elect to protect some of the value of your property as an inheritance for your family, meaning that you can benefit from releasing equity while still retaining something to pass on to your children. Some people may be able to release larger lump sums due to impaired health or may prefer to make monthly repayment in part, or in full, with an option to roll up at a later date if the monthly repayments became unaffordable.
A Home Reversion Plan also allows you to access all or part of the value of your property while retaining the right to remain in your property, rent free, for the rest of your life. With a Home Reversion product the provider will purchase all or part of your house taking into account your age and your health and will provide you with a tax free cash lump sum (or regular payments) and a lifetime lease, guaranteeing you the right to stay in your property rent-free for the rest of your life. There is no day-to-day interference and no restrictions on treating the house exactly as before; as a private home to live in freely. The percentage you retain in your property will always remain the same regardless of the change in property values, unless you decide to take further cash releases. At the end of the plan your property is sold and the sale proceeds are shared according to the remaining proportions of ownership.
With both a Lifetime Mortgage and a Home Reversion Plan it is possible to give a homeowner some certainty in their future finances. With a Home Reversion Plan the client knows precisely what he/she has parted with and, equally, what has been ring-fenced for later use, possibly to leave in a Will. With some Lifetime Mortgages it may be possible to also ring-fence an element of equity.