Friday, July 13, 2012

Finance For a Great Retirement!

English: Sign of a mortgage centre in East Lon...(Photo credit: Wikipedia)Although there can be no mandatory retirement age and people nowadays are working well into their seventies, the time when one is in one’s fifties is a good time to start planning for retirement. And 65 (or in some places, 67) is, after all, the age at which people become eligible for retirement benefits such as pensions. This article will be primarily about equity release schemes and the best ones there are out there.

The precise definition of an equity release scheme is when somebody uses the value of their residence to get a lump sum of money, thus providing themselves with a steady source of income, while retaining the use and possession of it. When the beneficiary dies—or occasionally, before then—they must repay that amount; and any pre- existing mortgage must also be paid off.

There are five basic types of equity release schemes:

(1) Home income - a form of lifetime mortgage (see number 4) whereby the capital can be used to purchase annuities which the lender himself may provide.

(2) Home reversion - where the homeowner sells his house to a reversion company, in whole or in part, so that the latter owns that much thereof, but the resident still retains the right to live there and (depending on his choice) receives a lump sum and/ or a regular income.

(3) Interest only - the borrower makes interest payments for as long as he remains on the property, with the loan itself being repaid upon the borrower’s death.

(4) Lifetime mortgage - whereby the homeowner takes out a mortgage loan on the property, retaining ownership thereof for as long as he remains living there, repaying the loan and compound interest that is added to it throughout its term by selling the house and moving into a retirement home.

(5) Shared appreciation mortgage – again, the homeowner retains the right to live in the house; he takes out a capital loan and in turn, owes the lender any increase in the value of the property.

Equity release has a number of advantages. The most important, of course, is that it provides the borrower with a steady source of income for the rest of their life. But there are other benefits as well. It can reduce the amount of inheritance tax on the property. Decline in interest rates are no problem, as the mortgage can easily be refinanced with another provider at a lower price. Likewise with downturns in the housing market: Here the borrower is protected by the no negative equity guarantee, which ensures that the total amount of the amount borrowed and the interest accumulated on it cannot exceed the house’s future value when it is sold as outlined in the terms of the scheme.

It is quite easy to take part in an equity release plan. An individual’s eligibility depends largely on the mortgage provider; however, in most cases the minimum age is 55 (but see under reverse mortgage, below) and the person must be retired, since, as mentioned above, the purpose of the scheme is to allow retirement itself to provide a source of income. Those who prefer to release income, or to take out a home reversion loan (described above), generally have to be at least 65. The property must be owned by the applicant and in good condition. It should also be on either long leasehold or freehold.

Most schemes operated under the term “equity release,” including those described below, are available only in the United Kingdom. In the United States, a form of equity release called reverse mortgage is provided to those 62 and over under an HUD-administered federal program.

Some of the best equity release schemes are:

• Equity Release—variable type, no early repayment charges accrued on the loan
• Aviva Lifestyle flexible option—fixed
• Liverpool Victoria flexible lifetime mortgage—fixed

In Stafford, England, Lyndon and June Watts, age 71 and 74 have enjoyed a happy elderly life due to equity release. They used the money to make improvements to their house, which is also worth more now than when they first took out the loan, go for holiday and spend money on their grandchildren.

Author Bio - Jonny Webber lives in Manchester, where he works as a free lance writer creating content about Health, Fitness and Finance. To find out more about Equity release visit Follow him on twitter by clicking @Jonnywriter

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