Wednesday, November 2, 2011

Is Equity Release Still Worth It in the Current Economic Climate?

WASHINGTON - NOVEMBER 08:  Travelers Companies...Image by Getty Images via @daylife

Seniors are often hopeful of attaining a financially secured life with a wonderful house and tons of quality bonding time with their relatives. However, as the years go by, the life they aspire tends to become more difficult to achieve with the constantly increasing gap between the inflation and salary, not to mention the continuous rise in the cost of living. With the current economic climate going to a direction unfavorable to the majority of retirees, equity release may just be the most reasonable option.

Equity release is a system that allows you to get the value of your property albeit having to still live there. This is open for individuals whose age range from 55 to 70. Ultimately, it is a means of increasing pension income for most retirees.

The two main kinds of schemes are the lifetime mortgage and home reversion scheme. The former is where a homeowner is charged an interest that will be rolled up to a lump to be paid when you move out or become deceased. In the home reversion scheme, a company will purchase the entire or part of the property at around 20 to 60 percent of the market value of the estate, and in return, a steady income or cash lump sum would be granted. The company would then sell the property after you are deceased.

Property prices have barely increased in the previous months, and it has been forecasted that real estate prices may roll back by about 20 percent after a couple of years. The 2.8 percent reduction in prices in the past year only emphasizes the distress of a possible downturn.

With the current economic climate, going for equity release is a hard decision to make. However, many experts are hopeful of this year being better than the last, with many lenders coming back in the market. Consumers and the market alike would be more self-assured, though it won’t be affecting the slowdown of property prices.

Change is inevitable in the economic climate, which is why homeowners should consider downsizing in the later years after any equity release scheme, or sell the property entirely and move to a sheltered house or care home. Also, be sure to check if the scheme allows transfer to another estate and if penalties are settled upon closing an equity release plan prior to death. Family members are most affected in the inheritance homeowners are to give to them, so it’s best to consult with them to prevent any possible misunderstandings in the future.

Andrew is a real estate blogger and journalist. He writes on all things to do with property and personal finance as well as small business finance, from managing your taxes through to investing in solar panels.

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