Equity release schemes are programs that let homeowners access the money tied up with their property. These programs mainly benefit people between the ages of 55-70 who have already paid off their mortgage and own their home.
What is an equity release scheme?
An equity release scheme is basically a loan, which is paid in either one lump sum, or drawn out over a number of years. This loan is paid against the value of your home, which is passed onto lenders after you have passed away, or have been moved into a retirement home.
There are numerous pros and cons to equity release schemes. For many people equity release represents an inaccessible pool of money they have amassed, which can help them enjoy their retirement years. However, entering an equity release scheme also means that once you pass on your home will go to your lenders, rather than family or loved ones.
Pros
For older people whose homes are paid off but who don’t have a lot of liquid assets, equity release schemes can give them the infusion of cash they need to live the quality of life they have always dreamed of. They can use some of the money to travel, help their loved ones or just have some fun. For retired people this may be the ideal situation. They can travel the world, have fun with their children and grandchildren, assist them with business or education and still have a property to live in during their later years. Equity release schemes also come with clauses, which ensure that the owner of the house can continue living in the house until the day they die.
Cons
There are inherent risks in equity release schemes. For many people their home is their only investment, which will be theirs to enjoy while they are alive and to leave for their loved ones when they die. Drawing out their equity to use for business or pleasure can be a risky proposition. The money can be stolen, lost or used carelessly and they would be left with the burden of having to find alternative ways of financing their later years.
The amount you receive is also a great deal less than the actual value of your home, which is one of the biggest downsides.
Equity release schemes can offer the best of both worlds. You can enjoy your money now and still have the security of home ownership. However, one must be aware that there is a certain amount of risk involved.
About The Author
Becky Mackay is an online lifestyle writer, with a keen interest in ecological solutions to economic problems, thrifty living and equity release schemes.
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