Equity Home: The twilight years

A home is the sanctuary for comfortable old age. That is the hope of many people in or approaching retirement. Through home equity- release schemes, they rely on value of their homes to provide enough money so that inadequate pension provision can be supplemented and cost of long term needs covered. Home equity can be used for clearing pending debts and also to boost income which has become much low due to low savings rate.

Members of a family need to take part in the decision leading to release of home equity. This release would drastically reduce the worth of the property left to children. 80% of families do involve children in the decision making claims experts offering retirement solutions. Sometimes the money is withdrawn for family members. The present crisis is making more and more parents to go for home equity release for bailing out their struggling children.

A plan for the release of equity from home enables home owners who are 55 and over to unlock the money in their homes even while continuing to live there. There are two schemes available for release of home equity. The more common one is the lifetime mortgage wherein a loan is availed for part of the property and paid as monthly income or as a lump sum. There is no need for repayments and the loan is settled only after the demise of the person or advent to a care home. After this, the house is sold and money is used to pay off interest and capital of the loan. The second scheme is the reversion plan where a part of the house is sold in return for a lump sum of cash. The lender receives his amount of money when the property is sold.  Both the schemes are under regulation of Financial Services Authority of the city concerned.

Main disadvantage of release of home equity is that debt is repaid only after the sale of the house. This takes time and by then there would not be any equity left on the house that can be left for dependants. Hence the counsel of children is very important for the decision. The schemes are very complex in reality and elderly parents might find it difficult to understand the nuances. Family members and children concerned can avail professional financial help and discuss options with financial adviser before committing.

There are many ways to get around the problem of leaving no inheritance for your loved ones. There are plans approved by industry body called Safe Home Income Plans that gives you a no negative equity guarantee which ensures that amount owed would never be more than value of property and in addition there is option to move house too. There are schemes that allow you to guarantee your relative an inheritance. Another way would be to give part of the cash received on equity as inheritance. This way loved ones receive their share early.

Affordable retirement and long term care is possible only if financial planning is done early and if children support parents through it.