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Turning some of your home into cash is a big step and one which deserves careful
consideration. The equityRelease
Centre pride ourselves in spending time with all interested
parties to discuss the implications of such Equity Release schemes and explore
alternatives.
Are there any repayments? |
This will depend on the type of scheme chosen. With a Lifetime Roll Up Mortgage, you pay nothing back during the term of the mortgage. The loan plus interest and any other charges are repaid once the house is sold and the house will be sold when you either die or move into long term care (or in the event of a joint plan the remaining partner has either died or gone into long term care). If you choose a Home Reversion plan you may have a nominal fee to pay on a monthly or yearly basis but this is usually very low. Should you prefer an ordinary mortgage you will of course have to make monthly repayments.
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What will it cost? |
You will incur costs and these depend on the type of scheme you choose, you will normally have a valuation fee to pay, at time of application, the cost of which is determined by the value of your house. You may have lenders arrangement fees to pay, adviser's fees and solicitor's fees. Some of these fees can be added to your loan or you can pay them from the proceeds. Before proceeding we will provide you with a full Key Features Illustration of the plan we would recommend, which will outline all of these costs.
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Just how soon could I have the money? |
In the case of an ordinary mortgage you could usually expect to receive the money within 6 weeks. In the case of Lifetime Roll Up Mortgages or Home Reversion plan we would hope to have them completed within 8 -10 weeks, although it can take longer, with a lot depending on just how quickly your solicitor acts.
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Could I lose my home? |
In the case of all SHIP approved Lifetime Roll Up Mortgages, Home Income Plans or Home Reversion plan – NO. Providing you keep to the scheme rules you can be assured you can remain living in your home for just as long as you want to. Should you choose an ordinary mortgage, then if you didn’t keep up the repayments, the mortgage lender could repossess the home.
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Doesn't it reduce future inheritances? |
Certainly the interest rolled up on Lifetime Mortgage schemes (or
the immediate reduction in the value of the portion sold, under a Home Reversion plan) will reduce the estate's value and this is why we suggest you talk it over with your family. However, as many people are
finding out it can be an enjoyable way of making a living inheritance possibly to help grandchildren buy their
first home, and can also reduce the estate you leave.
However, as the rules on Inheritance Tax are liable to change
and equity consumed by any equity release scheme may exceed any Inheritance Tax
savings made, we strongly suggest that Equity Release should not be considered
solely as a means of mitigating Inheritance Tax and that any Inheritance Tax
benefit which may be gained should be seen only as a possible supplementary
benefit.
With a lifetime mortgage, if you live a long time or house prices fall, there may be no equity left for your heirs to inherit.
Home Reversion Plans
If you sell 100% of the ownership to a company, the provider will arrange the sale of the property. If you sell less than 100% the majority of companies will arrange the sale. You or your estate will still receive the proportion of the home's value (minus costs) you originally chose to retain. Regarding sale costs, some will split the costs with you or your representatives in the same proportion as the percentage you sold to them, whilst others may charge you all the fees.
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Could there be negative equity? |
No. Whilst under a Lifetime Mortgage roll up
scheme the debt will grow over time with interest being added to the original
capital borrowed, providing you keep to scheme rules, any SHIP lender guarantees
never to ask for more money back than the house could be sold for. Therefore you
can be reassured that neither your children or any other beneficiaries will ever
inherit a debt
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Will it affect my benefits? |
Yes. Any income or capital generated could affect any means tested state benefits you are entitled to or may otherwise be entitled to. If in doubt you should only consider releasing equity after checking your entitlement/continued entitlement with the Benefits Agency, Citizens Advice Bureau or Local Authority. If equity release would affect your benefits you should only consider it if you are happy that the benefits gained outweigh any loss and that you would be able to manage on any reduced income.
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Will Equity Release prevent me moving? |
No. All Equity Release schemes recommended by us allow you to move, providing you want to move
to a normally constructed property located somewhere in mainland England Wales
or Scotland and it is Freehold or Leasehold with sufficient remaining years left
on the lease. However, if you move to a smaller property, to avoid a Lifetime
mortgage loan representing an irresponsible percentage of your new home, you may
be asked to repay some of the original loan, to keep the new loan in proportion
to the cheaper property. If so, this would normally come from the profit made on
moving.
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What happens if I need Long Term Care? |
From April 6th 2009 anyone needing care and
living in England who have assets totalling more than £23,000 (2009/10) needs to
pay for their own care until assets fall below £23,000. The relevant limits for
Scotland and Wales are £22,500 and £22,000 respectively (2009/10). Releasing
equity will leave less money available to be meet your own needs However should
you require care in your own home, equity release by releasing funds can prove a
useful way of giving you more choice over the type and quality of domiciliary
care you want and deserve. For further details on Long Term Care protection please visit our specialist website www.adviceoncare.co.uk.
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Can I pay off the loan? |
Yes – if a Lifetime Mortgage scheme However with most schemes you may need to pay an Early Repayment Charge should you want to repay within an agreed time period normally first 5 or 10, although with a few it may be at anytime.
However, should early repayment be a high priority for you, we are now able to offer a scheme which would allow you to repay at anytime without any penalty, you would simply pay back the original amount borrowed plus interest accrued up to the time you wish to repay.
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Are there any properties on which you cannot release equity? |
Yes -
Should your property fall into one of the last two, The equityRelease Centre may still be able to find a suitable lender. If in any doubt please complete our online enquiry form and we will look into it for you.
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Who sells the property on my death? |
Interest Only Mortgage/Lifetime Mortgage schemes
As you do not sell any legal ownership, it remains for your representatives to arrange the sale of the property and pay the loan and interest back to the lender, retaining the balance. As interest is due until such time as the debt is repaid, it is in their interest to try and obtain the best possible price as quickly as possible. Specialist lenders do, however, retain the right to sell the property should it remain unsold after a prescribed period of time. This period varies between providers and can be from 6 - 18 months. Your estate will be responsible for all selling costs.
Reversion plans
If you sell 100% of the ownership to a company, the provider will arrange the sale of the property. If you sell less than 100% the majority of companies will arrange the sale. You or your estate will still receive the proportion of the home's value (minus costs) you originally chose to retain. Regarding sale costs, some will split the costs with you or your representatives in the same proportion as the percentage you sold to them, whilst others may charge you all the fees.
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What About Taxation? |
The lump sum produced from releasing equity via a lifetime mortgage or Home Reversion Plan is free of both Capital Gains Tax and Income Tax. Should, however, you put the money into a deposit account you will be taxed on the interest you receive from it. If you wish to invest some of the equity released for income, we can offer you advice on how to achieve this tax efficiently.
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The income produced by a Home Reversion plan is normally provided by an annuity. This allows a percentage of each income payment to be regarded as a return of the capital used to purchase it, and therefore tax-free. The balance however, is deemed as interest and is taxed at source at 20%, unless the income together with your other income does not make you liable for tax when it could be paid gross. Higher Rate taxpayers would have additional tax to pay on the annuity's income.
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| This section should not be regarded as a full discussion of all the points to consider but as a brief outline. As The equityRelease Centre only recommends plans which meet the Safe Home Income Plans (SHIP) criteria, you can be reassured that apart from discussing any concerns you may have, with us, it is a requirement of SHIP companies that you appoint your own solicitor to act on your behalf. They have to certify that they have discussed all points with you, before the company will release any money. |
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Alternatives |
Couldn't we just borrow money to help us? |
Yes. Even when retired, banks and building societies will offer loans and even interest only mortgages. You should bear in mind that the repayments will increase your outgoings per month, and so add further pressure to balancing the budget. Alternatively, some of your family may even be prepared to lend you money. Whilst this latter option should be the cheapest, many people decide not borrow from their family, preferring instead to profit from their own shrewd investment.
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Why not release capital by moving to a smaller property?
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For those with large detached properties, moving to a smaller property could release considerable equity. Also for those who are willing to move from their own area to a cheaper one, considerable equity may be able to be released. In either case, moving would normally provide the cheapest option.
However, if you prefer not to move away from family and friends, or have a typical three-bedroom semi you may find that moving to somewhere smaller, especially once the costs of estate agents, solicitors and removals are taken into account, may not release sufficient equity.
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How about using existing savings?
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Certainly if you have existing savings or investments, you should consider whether to use these to help you first especially if the returns on these investments are liable to fluctuations and/or are not returning (net of charges and tax) more than the interest which would be added to the loan.
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Applying for state benefits or grants?
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If you are looking for extra income, and have not tried claiming any means tested benefits such as Pension Credit/Income Support, Council Tax Benefit etc, then you should certainly first look to see if you would qualify and check to see if the amount you would qualify for would meet your needs before proceeding with Equity Release. However should you not qualify, or your need is for lump sums and you could still survive if you lost any of these benefits you may have been entitled to or would now fail to qualify for, you may feel that it is still better to proceed with Equity Release. However we would strongly recommend that you should first check with the Benefits Agency/Pension Service or Citizen Advice Bureau, before applying for Equity Release.
Likewise if you want to make home improvements and need a lump sum you should first check to see if you would qualify for a Local Authority or Charitable Grant.
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Could we generate extra income by renting room in our property?
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Whilst this can produce valuable extra income and provide companionship, you may find your need is more for a lump sum or you may simply prefer not to share your home with a stranger.
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“Equity release” includes home reversions plans and lifetime mortgages. To understand the features and risks ask for a personalised illustration. |
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