What is Equity Release?
Equity release is a means of turning some of the capital tied-up in your parent’s home into cash or income that they can spend
Basically, there are two distinct methods of equity release for over 55s, Lifetime Mortgage and Home Reversion
With a Lifetime Mortgage, a Lender grants a mortgage on the property, which is generally exempt from any repayments of capital or interest during the lifetime of your parents, releasing the equity
The cash released can either be drawn as a single lump sum or in stages, as required. All the interest and charges roll-up within the loan and the final total is only repaid when the property is sold
With a Home Reversion, a proportion (or even the whole) of the property is sold at a deep discount to the Home Reversion Company. Upon eventual sale, the actual proceeds are split in accordance with the original terms
In both cases, parents are granted the right to remain in the property until they die, go into care or sell it. With the Lifetime Mortgage there is also a guarantee the debt will not exceed the value of the property
What are the risks?
Some of the risks of Equity Release are mitigated because all reputable Equity Release providers are members of the Equity Release Council (formerly SHIP), a consumer protection trade body set-up in 1991. The Equity Release Council sets-out strict standards in their code of conduct
However, your parents should always think carefully before securing other debts against their home
Your parents’ home may be at risk if they do not keep up repayments on a mortgage or any other debt secured on it
The impact of a potentially severely depleted asset on their eventual beneficiaries also should be kept in mind
Clive Barwell TEP FCSI CFP is an accredited member of the Society of Later Life Advisers and uses his vast experience as an Independent Financial Adviser to provide a financial “satellite navigation” system to his Clients. Financial planning is all about establishing the current location, ascertaining the future desired destination, plotting a course, keeping to that course and avoiding the financial obstacles of life.
Clive can be contacted at http://www.clivebarwell.co.uk/contact/.
