Unlocking the value of your property and converting it into cash is a way to free up capital. This can be done through a variety of policies that allow you to access the money tied up in your home. A capital release provider will provide you with a lump sum or income in exchange for a portion of the value of your home. This is achieved through a type of mortgage or by selling that part of your house on the condition that you can continue to live there as long as you want. Capital release refers to a range of products that enable older people to access the capital (cash) stored in their home.
You can take the money you release as a lump sum or in several smaller amounts, or as a combination of both. All lenders with capital release intend to repay when the last borrower dies or goes into long-term care. Therefore, the saleability of the property is one of the lender's most important considerations when looking to lend money. No, you don't need a good credit score to have a capital release plan. The main reason is that you are not required to make payments during the term.
Therefore, the lender does not require you to meet any affordability criteria. Capital release allows homeowners aged 55 and over to release tax-free cash on the value of their home. The amount you can release is based on your age and the value of your home. Depending on the capital release product you choose, you can claim your money as a large lump sum or as a series of smaller lump sums. If you live in a mortgaged property, the principal of the property is the difference between the value of your home and the total of the mortgage and any loans you have secured on it.
The release of capital is an agreement that allows you to access this money without having to leave your home. Generally, you must be at least 55 years old. You may be able to receive the money you hand over as a lump sum or in smaller regular payments, or both. With any form of capital release, ask your independent financial advisor or mortgage broker to explain the risks in detail, including how much it could cost your family in the long term and whether reducing staff might be a better option. As with other capital release plans, the amount you receive depends on the value of your home, your age and your health. You'll need to tell your equity settlement company so that it can decide if your new home has a similar value.
If you are considering freeing up capital, contact StepChange Financial Solutions (part of StepChange Debt Charity) for free and unbiased advice on capital release plans. If your annuity mortgage is from a member of the Capital Release Council, there is a guarantee of “no negative capital”, meaning that you or your beneficiaries will never have to return more than the value of the property when it is sold, but there may be nothing left. The main disadvantage of capital release is that it doesn't pay you the full market value of your home. Only if you consider all available options will you know that capital release is best for your circumstances. Capital release money could also prevent you from receiving benefits subject to resource verification, such as pension credit and municipal tax support.
If you use the money you collect from capital release to pay off debts, this may affect your right to benefits. A qualified advisor will help you determine if capital release is the best option for your individual circumstances and, if you want to proceed, ensure that you meet all criteria. Freeing up capital can be useful if you want to pay off an existing mortgage, increase your income, or pay for care needs. Your financial advisor or mortgage advisor can help you decide if a capital release plan is appropriate or if you should consider other options, such as downsizing.
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