The most popular equity release uses are home improvements, paying off unsecured debts and mortgages, augmenting personal income, buying real estate, and helping a family. These programs can be used by almost anyone. There is no credit check and they do not require collateral.
The most common equity release uses for the purpose of home renovations are interest-only and repayment programs. An interest-only mortgage is a loan that has no interest during the initial years of the loan (the asset does not earn any interest either). Repayment mortgages are loans that feature a fixed rate and payments that are scheduled for a specific number of years. For the interest-only mortgage, there is no capital gain when you sell your home, which is a significant benefit. You only have to pay interest on the amount of your loan which is lower than what you would pay if you were to refinance, so this method is often recommended for first-time home buyers.
Home equity release uses for clients aged 62 and older are a little different than the younger crowd. These clients are considered “high-risk” and there are restrictions placed on how much equity they can have in their homes. There are two equity release plans that these clients can take advantage of: voluntary and compulsory. Voluntary equity release plans allow the client to retire early; whereas the compulsory equity release plan requires the client to retire with at least three years of income.
As people age, many questions arise. Will they be able to pass away unexpectedly without some form of compensation? How will they pay for medical expenses? Will they be able to buy a house or condo when they grow older? These are all valid concerns. To protect against any unforeseen issues and/or concerns, it is important to know how you can use your equity release to address them.
For example, some people decide to utilize their equity release to purchase either a house or condo when they are planning to purchase long-term (passive) income. Many times, people end up taking up long-term mortgages that are extremely expensive because they are unable to obtain a traditional mortgage (one that offers a fixed rate and a long-term commitment). An alternative is to utilize the equity release plan to purchase one or both of these items for cash. This eliminates the need for a long-term commitment and/or interest rate that is higher than the interest rate offered by a conventional mortgage.
A second example is a client who decides to use their equity release to pay down their student debt. Although they may not be able to refinance their way to a one or two percent interest rate on a one or two thousand dollar capital loan, the amount of time and money it saves them is significant. In most cases, students who have long-term debts typically will not make use of their homes or other property as collateral for a traditional mortgage, which is what usually makes homeowners take out long-term loans with high interest rates. A third example would be if the client were planning on using their equity release to purchase a vacation rental property, the amount they could receive from their equity release plan can be used to pay down the principal of their loan or make payments toward the loan balance in order to eliminate the debt completely.