Equity Release

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February 10, 2011
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March 5, 2011

Equity Release

Most people fear for the future. This is not an unreasonable fear, as no one can predict what will happen to them. As such, they do anything that they can do to safeguard that future, and real estate is usually a good safeguard. Real estate can be used as a safeguard in a number of ways not only does it make for a good investment, but it can also be used as collateral for loans. One of those loans can help secure a person’s retirement, requiring a home equity release on the home or other property for those who are getting into real estate, it may worth setting up one of the properties for equity release.

More information on equity release

A home equity release is essentially a mortgage with a difference. With most mortgages a loan is taken out against the value of a piece of property with the assumption is that a person will eventually pay back the loan, or at least make an effort to pay it back. If the loan is not paid back, the bank, or other lending institution, can begin foreclosure proceedings on the property used as collateral. An equity release is essentially a loan where the assumption is that it will not be paid back, and that the lending institution will eventually have ownership of the property. This assumption makes for a more secure retirement for the person in question.

There are essentially two types of equity releases lifetime mortgages and home inversion. A lifetime mortgage works as like a standard mortgage does, in that the loan continues to accrue interest as long as it is active, but no payment is due until the person dies or moves into an enabled care facility. Once that happens the loan is due, with accumulated interest, or the home will be foreclosed upon. The inheritors of the estate have the option to let the foreclosure happen or to pay off the outstanding debt.

A home inversion is the more common of the two, as it is cleaner and allows for more options. The person taking the loan receives a lump sum, a monthly payment, or some mix of the two, and in exchange must not only insure the property but must also maintain it. The person also has the option of getting a loan based on the full value of the property or can set aside a percentage for personal use. When the person dies or moves to an enabled care facility the property is sold, and the proceeds either go to solely to lending institution or are split between it and the heirs of the estate based on the percentage set aside.

While a home equity release is usually set up on the person’s home property, it can be done for any property owned by a person. Thus, it may be worth setting up another property as the property used for this loan, thus securing not only a decent retirement but also the home for heirs. Overall, this is a neat solution for the difficult problem of retirement and inheritance and makes the future a little more predictable, making everyone feel a little more secure and making retirement a lot more enjoyable.

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