Equity Release Can Provide You With A Comfortable Retirement

The biggest enemy any retiree face is probably inflation. The day when you retire, you often have a house that has been fully paid and you also have a sizeable sum of money invested. You might be sure it's enough to last as long as you live. Inflation, unfortunately starts eating away at your retirement funds from day one, and you may soon be in a position where you don't have enough money to meet your regular commitments every month. For people like you there's a system called equity release, which can provide you with enough money to enjoy your old age.

There's two different kinds of equity release programs in the UK. The first one is referred to as a lifetime mortgage and the second one is called a reversion plan. We will briefly discuss both these options.

A lifetime mortgage plan is great if you have a fully paid up house or apartment. The way it works is that you register a bond on the property and thus get a lump sum paid out to you. You then re-invest this money and receive a regular monthly interest payment.

The nice part is that there is no bond repayment involved: the interest on the loan is simply added to the capital each year and one day when you die the lender sells the property to repay the loan.

One negative implication of this is of course that your family can't inherit a deb-free home, since the house has to be sold to pay the outstanding loan. At least the bond will never get bigger than the market value of the property - this is guaranteed by a plan called NNEG - the No Negative Equity Guarantee program.

The second type of equity release, known as a reversion plan, means that you will be selling all or part of your property to someone else in return for the right to stay on in the house or apartment for the balance of your life. Depending on how much the property is worth, you will also receive a monthly income.

Before signing up with a lender, first ensure that he is a member of SHIP, which is a voluntary group laying down standards for the industry. There are some dishonest brokers in the market and you don't want to fall victim to one of them. Fortunately, since the industry has come under the control of the Financial Services Authority, there are not many of them left in the market.