Equity Release Can Be a Good Way of Funding Care Costs
For those that need to cover the cost of care in their homes, using the equity in property itself could be a way of raising the funds required.
All too often people are hit by care costs but fail to realise that taking some money out of the home without having to sell up is an option.
The scheme works by allowing people who are ‘property rich, cash poor’ to raise money without having to make any monthly repayments like you would on a loan or traditional mortgage.
There are currently two options.
The first is known as a lifetime mortgage. This is where someone borrows a proportion of the home’s value. No repayments are made but interest is charged and rolled up until the property is either sold or the homeowner dies.
The second system is called a home reversion scheme and enables people to sell a percentage of the property to the provider at less than market value. If you die or have to move into long-term residential care, then the property is sold and the provider takes back the percentage they leant.
Andrea Rozario, director general of Safe Home Income Plans (SHIP), explained: “One of the main benefits of equity release is that you’re releasing money from your home without having to make any monthly repayments.
“[This] means that clearly you have got the benefit of the capital and it isn’t eating into your disposable income by having to make repayments. Alongside that you have security of tenure, so you don’t have to worry about being evicted from your property because you can’t keep up with payments.”
However, it is advisable to think long and hard about whether an equity release scheme is needed before signing up to one.
Matthew Rich, independent financial planner at Alan Seward Financial Services, said recently that equity release schemes have become an increasingly popular way of paying for care because of rises in house prices coupled with longer life expectancy and low interest rates means.
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