Equity Release Versus the Halifax Retirement Home Plan - And the Winner Is?

Confusion reigns at a time in life when stability, financial security & freedom to enjoy the fruits of one's success should be evident. Yes, we are talking retirement, equity release & the increasingly popular Halifax Retirement Home Plan.

Here we discuss the options available to those already retired or the up & coming baby boomer generation, as they prepare to assess how they are to manage in today's financial maelstrom.

For many, & usually it all boils down to lack of financial planning in earlier life; retirement is none of the aforementioned attributes associated with the longest holiday of your life.

We all go through life thinking retirement seems a distance over the horizon. From getting that first job, raising the children & moving up the ranks in the employment world, our lives move forward apace.

But the inevitable will reach us all one day & without foresight retirement could be the biggest challenge in your lifestyle thus far.

So how should we prepare & how do we invest in our futures to ensure a retirement of fulfilment?

The spoken word, 'hope for the best, prepare for the worst' must have a ring of truth when it comes to retirement planning. It's a recipe on the menu that's always put on the back burner & one on the 'to-do' list of things that can wait until tomorrow...YOU CAN'T.

Looking back at that first job is where the seeds should initially be sown. Whether it's joining that company pension scheme or making your own provision, a pension should be the life jacket for your retirement.

The old adage of the earlier you start a pension the less you need to pay in later is gospel & with the tax advantages on offer they still represent one of the best ways to build a pot of gold for the future.

But there are other options now available which represent a safer alternative & more hands on approach such as real estate.

The buy to let market is currently undergoing transformation in the current economic climate, with rental incomes outstripping savers returns on bank & building society accounts. There is also the potential capital appreciation aspect of owning a property which has been a tried & tested route for many over the longer term.

Property is a tangible asset; you have control over how it looks, you can manipulate it & affect its value. The sole aim of these actions is to build asset value & thereby probably without hindsight, can build yourself a 'retirement vehicle'.

So let's see which vehicle will suit your requirements & enable you to navigate down the retirement highway...

Firstly, the question that needs to be asked is whether an income or capital lump sum is required? Given the fact that most tax free cash requirements are for capital, the options are then narrowed down to affordability in retirement.

The next important consideration is whether one can support the monthly payments of an interest only mortgage, or are finances so tight that no further monthly payments are required throughout retirement. The answer to this will filter us towards the ultimate decision; that is whether the solution is an interest only lifetime mortgage or a roll-up equity release scheme?

On the one hand you have an interest only mortgage, where monthly payments are required to be maintained for the rest of your life & results in a continuously stable & level balance during the remaining term.

This is in complete contrast to a roll-up equity release plan, which requires no monthly payments whatsoever, but allows the interest to compound & the balance of the mortgage to get larger.

Let's have a look the features of each option further.

Roll-Up equity release scheme

· Classified as a Lifetime mortgage, hence no term is specified

· Schemes are regulated by the FSA & are also members of SHIP

· Equity release schemes start at age 55

· No income required for eligibility

· Maximum release is 55% of the property value (with ill-health)

· Credit history is not a major concern to equity release companies

· No monthly payments required

· Increasing balance as the interest is compounded monthly or annually

· Flexibility of drawdown schemes available to take regular cash releases with guaranteed reserve facilities. This ensures future cash availability with no further costs.

· Interest rates are fixed for life

· Reduced, or no inheritance left for the beneficiaries of the estate

· Executors have upto 12 months in which to repay the lender, usually by sale of the property

Halifax Retirement Home Plan

· Classified as a Lifetime mortgage, hence no term is specified

· Pensioner mortgage & regulated by the FSA

· Starting age is 65, however with enough pension income, over 55's are acceptable

· Retirement income alone will determine how much that can be borrowed

· The maximum amount borrowed is capped at 75% of the property valuation

· Credit history is checked & any adverse record could result in a declined application

· Monthly payments must be maintained to avoid repossession

· Mortgage balance remains exactly the same throughout the plan term

· Further advance application required to borrow additional funds & will be credit assessed each time for affordability.

· Option of tracker & fixed rates available, initially for a maximum of 5 years. Therefore, no guarantee of the future costs of the monthly mortgage payments.

· Reduced inheritance, albeit a specific amount which the beneficiaries will know the extent

· Beneficiaries have 18 months in which to sell the property, after death or the mortgagors moving into long term care.

So the winner is?

There is no actual winner in this pensioner mortgage market.

Both schemes have the advantages & disadvantages depending upon one's retirement finances.

However, if a good retirement & disposable income is available & future affordability secured, then certainly the Halifax Retirement Home Plan is justifiable for the applicants & more so for the beneficiaries. Nevertheless, it is vitally important that steps are also taken to protect each party to the interest only retirement mortgage in case one applicant dies as the survivor will still need to maintain the monthly payments. Therefore, life insurance should always be considered on the Halifax Retirement Home Plan.

Alternatively, for those on lower incomes, less of a disposable income & are not too concerned about their children's inheritance, then a roll-up equity release mortgage could be their preference. The roll-up equity release schemes have no effect on monthly budget & can never result in repossession based on lack of affordability or missed payments.

These schemes can be classed as a 'mortgage of last resort' as once all the alternatives have been considered & eliminated. Equity release roll-up can always be the backup plan. Even more so should one default or struggle with the affordability of an interest only lifetime mortgage such as the Halifax Retirement Home Plan, as equity release schemes can be used to clear the Halifax mortgage.

The following is an equity release tip - to ensure that equity release can act as a safety net, if you are looking to borrow on a Halifax equity release scheme then always consider & keep within the loan-to-value limits of the equivalent equity release scheme rules. If you do this then you have equity release as a fall back to switch to in the future.

There are many more tips & advice available on this subject, but as always seek an independent financial adviser who is qualified & experienced in these two specialist fields.

Those Approaching Retirement May Often Be Considering Equity Release Schemes

Most people have a few financial decisions to make when approaching retirement age. Some leave these decisions until after retirement and then find that with only a small pension and few savings finances will be difficult in the future. If they own their own property they may be eligible to take advantage of an equity release scheme which allows them to use part of the value of their property as either extra income or as a lump sum.

It is quite usual for the owner's property to be the single most valuable asset they have and as they get older need some extra income to allow them to have a more comfortable way of life. Schemes such as lifetime mortgages or home reversion plans give them the opportunity to release funds out of their property so they can enjoy life during their remaining years.

If you wish to participate in such a scheme there are a few things to consider. You need to be over 55 years old and the property must be in good order with any existing mortgage paid off or at least be very near the end of the mortgage term.

The older you are the more equity you are able to release. An 80 year-old would be able to get up to about 40% of the value of the home whereas a younger person of say 60 could be limited to about 20%.

There are advantages and disadvantages with lifetime mortgages and home reversion schemes and they may not suit everyone. The advantage of being able to have a lump sum or a regular monthly income can be attractive to many and save the necessity of having to move house. Schemes such as these are available from reputable providers, always check that the company is a member of the Safe Home Income Plan, and will guarantee that you are able to stay in your home until you die or go into long-term care.

One of the disadvantages is that the amount you are then able to leave to your family and friends will consequently be reduced. There may also be changes in tax regulations and you may be ineligible for means tested welfare benefits.

Whatever decisions you plan to make it is essential to take the advice of a professional independent financial advisor who will work with you and examine your overall financial situation to advise you as to whether an equity release plan is the most suitable solution for you. Independent financial advisors are able to give you information on what plans are available.

Claims and Refunds From the Mortgage Industry

Recent press activity has largely focused on the PPI scandal and the news that the banks have put away as much as five billion pounds to compensate their long suffering clients. However leading figures in the industry have now turned their attention to the mortgage lenders and questions are being raised about the way they lent money over the past decade.

Recent admission by the Halifax and Clysdale of not calculating mortgages correctly has seen home owners begin to question their mortgage paperwork. Fines handed out by the FSA to lenders such as DB Mortgages and GMAC to name just a few has called into the question the lengths at which lenders were willing to bend the rules and regulations just to ensure that mortgage applicants could and would finalise that deal. DB Mortgages were fined for lending past retirement and not advising on the consequences and asking the pivotal questions in accordance with MCOB.

Halifax admit to over charging 300,000 of their mortgage holders to the tune of half a billion pound and so people are now queing up to have their mortgages assessed to see if they are applicable.

Dave Taylor a mortgage holder with RBS said that he felt it necessary to utilise the services of a claims management company to see if he was due a refund of any kind. He went on to say 'Its about time the banks were held to account for their negligence, we've had endowments, bank charges, ppi, and now this, whens it going to stop?'

And Mr Taylor isnt the only one feeling the necessity to assess his mortgage. Diane Willock from the Mortgage Compensation Scheme informed us that they recive approximately one hundred queries a day with regards to having an assessment. MCS do not charge for their service and the client keeps 100% of any refund, however there has been an upsurge in the last two months of CMCs that offer a no win no fee mortgage refund. We spoke to Mark Taylor at a leading CMC who told us that since the banks have admitted to the PPI scandal people are now checking other financial products such as mortgages and investments and pension mis-selling.

So is it open season on the banks? In short the answer is yes. They have created a rod for their own back and people are starting to realise the value of a refund is beneficial in any climate. It seems that as PPI has grabbed the attention of the spot light the next big thing is mis-sold mortgages. FSA fines back this up, Halifax admitting overcharging back this up, Clysdale writing an average of five thousand pounds on mortgages back this up. So strike whilst the iron is hot and utilise the services of organisations that can see if you are due a refund, after all if you don't ask you don't get, and if you don't get then the banks are legally entitled to keep what is rightfully yours.

Finance for Buying Property - The Latest Trend of Owner Financing

Owner financing is the newest trend in property sales. It is easy to understand how it takes place. There is no third party involvement in this arrangement of finance. The seller decides everything and comes to an agreement with the buyer. This way, decisions are taken quicker and the payment is made easier. The only downside is the risk factor involved with the seller. However, good scrutiny of the status quo of the buyer could reduce it to a great extent. The number of transactions taking place on this method is evidence for its popularity for selling property.
One of the biggest advantages of this type of finance on property transactions is the ability of a person having a poor credit score to purchase a house. With this method a seller could agree to sell his property to one who has a bad credit record. Since the seller is doing the evaluation in private he could consider the factors that led to the poor credit score and come to a conclusion. This type of transaction will never go ahead on any other type of home financing. If the seller does a careful evaluation of the buyer's credentials, the risk also could be minimized to a great extent.
When a seller wants to get rid of the property quickly for a good price, making his own finance available for the buyer is the best way to get good results. A transaction that could take months with conventional methods could be closed in a few days as the seller will personally do the evaluation. Besides, by selling his property quickly he will also get better returns because he could dictate terms on which the sale is made. The buyer in turn may agree to pay a bit higher interest rate as it is a direct deal.
Usually, when finance facilities are offered in a property transaction, the period covered is about five years. During the five years the buyer may find it difficult as he has to pay a higher installment and interest payment every month. But he has the consolation that he owns the house in just five years. In case he wants a bulk sum of money after the completion of the final installment he could easily get a refinance deal on the conventional way. This way a buyer could be better off when he buys a home on an owner financing deal. The sellers in turn are better off as they are able to dispose of their properties quickly with lesser hassles.

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How to Finance Investment Property in a Buyers Market

Real properties remain great investments in Australia, especially in the current buyers market. As an investment strategy, real property presents various advantages over other types of investments such as stocks, bonds and bank deposits. However, raising enough cash for purchasing investment property can be a challenge for beginner investors. Ideally, a financial planner or mortgage broker should be able to help a prospective buyer learn how to finance investment property.
Benefits of investing in property
Financial freedom: The right property investment coupled with the best financing arrangements can generate huge profits for an investor. These can be used to finance other investment properties that generate similar incomes sufficient to sustain the desired lifestyle of an investor.
Passive income: Property situated in populated areas such as major cities and tourist destinations can generate regular passive income in the form of rent or lease payments.
Capital growth potential: The value of property is historically known to increase much faster than the economy's inflation rate. Properties in prime locations are known to appreciate in value at the minimum rate of 7% annually. An investor stands to earn higher profits from selling property held for a long period.
Control over value: Unlike other types of investment such as shares of stock, bonds and deposit accounts where an investor has very little control over their future values, property investment may be improved, renovated, subdivided, developed or consolidated to improve its market value.
How to finance investment property
Potential gains from an investment property depend on the features of its financing arrangement. Not all investment properties are purchased in cash. Investors generally put up a down payment and finance the remainder value using a loan or mortgage.
Mortgage loan: A mortgage is a loan where property, usually the property being purchased, is given as security for the loan's repayment. Interest costs for a mortgage loan are generally lower because the collateral lowers the lender's risk.
Home equity as deposit: Producing a down payment for a property investment can be a challenge for investors with limited cash. An option would be to use a property's equity as deposit. Equity refers to the value of an asset that is not subject to any lender's interest. In practical terms, it is the difference between the current value of a property and the amount due on a mortgage loan secured by it.
Lending companies provide different loan products with varying features such as interest rates and repayment schedules. Each financing arrangement has its own pros and cons. Aside from teaching you how to finance investment property, a mortgage broker or financial counselor can help you determine the best arrangement for your situation.