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2008-08-21 18:16:47

Equity Release -- Are you sure it's right for you?

Now that we have all (or most of us) adopted a healthier life style and are living to far older ages, our need for income for longer is required. Many are now finding there pensions fall short and do not provide sufficient funds to cope with the rising living costs, and the dreams of a relaxed and comfortable retirement are sadly a distant memory mostly due to the rising costs.

There are so many articles and advertisements promising an end to money troubles and the solution id merely to release the equity you have tied up in your home. Sounds simple enough but the area of equity release is vastly complicated.

There are many different options available and the wrong advice can have catastrophic consequences. What we would really like to see printed, though, are the risks and the costs, and more importantly the advisers are actually qualified and experienced in this highly technical area.

Equity release is understandably an attractive option as many do not wish to downsize to a smaller property.

Furthermore, the costs that are associated with moving home, coupled with potential sacrifices such as living in a less desirable area or further away from friends and family, may mean that very little equity is actually released and the whole exercise has a detrimental effect on those involved. 

There are many different types of scheme available allowing extra income or cash sums for their homes, and these fall into three generic categorizes, Reversion Plans, Lifetime Mortgages and Investment Mortgages, although you will see many different names which can often be misleading and confusing.

The Revision Plan involves selling all or part of your home to a private company in return for a lump sum or monthly income provided by way of an annuity. Reversion schemes allow you to remain in your property, typically rent-free. As a result this right to reside in the property, you will never receive the true open market value, moreover your age, health and sex at the outset will also determine the value with those older individuals in poor health receiving the greatest benefit.

Lifetime mortgages are specifically designed for older homeowners and will provide capital or income through the purchase of an income producing product with the capital raised. Lenders may specify a mortgage term but typically the contracts are open ended and no repayment is sought until the death of the borrower, the borrower leaves the property e.g long term care, or moving elsewhere.


Will I have the right to remain in my property for life?

Can I move to an alternative property without a financial penalty?

Will I receive an income or a cash lump sum?

Do I understand all the literature and all the benefits, obligations, variables and limitations clearly documented, including all costs which the applicant has the bear in setting up the scheme, the position on moving, the tax situation and the effect of changes in house values?

Is the adviser qualified to advise on this product?

Have I been offered independent legal advice?

A good financial and real estate adviser is like having a good friend. If you live in Metuchen and would like to chat visit for more details.


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