Equity Release Contracts
Equity release contracts often come with many pages of terms and conditions that ensure the protection of the borrower and the lender. After an equity release contract has been completed the lender will have a large interest in the borrower’s property and there will be many terms and conditions that need to be thoroughly checked over before signing.
What is Equity Release?Equity release is a way of using a home with a small mortgage to obtain either a lump sum of cash or a regular income in the form of instalments. The company that has loaned the money will then recover it by either selling the home after the owner dies or by receiving repayment if the owner sells.
Equity release plans are usually available to older people that have a small mortgage on the property. Equity release schemes are not regulated and the contracts do come with a large number of variable terms and conditions. It is vital to have a solicitor involved when a contract is drafted. There are numerous equity release plans available, and thoroughly researching the pros and cons of each plan should be undertaken before signing.
Terms and ConditionsThe terms and conditions of the equity release contract will be dependant on the type of plan that is being considered. But a number of questions should be asked before any signatures are placed on the contract. These should include:
- What are your rights regarding moving or selling the house?
- Will a spouse be able to live in the house after the borrower dies?
- What are the guaranteed payments in relation to age?
- Are any rental payments required?
- What will the total fees be to complete the deal?
- Will the received cash cancel out any rights to means tested benefits?
- Is a no negative equity guarantee written into the contract?
- Will fees be included in the actual loan amount?
- What conditions are there for the repair and maintenance of the property?
- Details on breaching the contract.
Hidden ClausesAlways make sure that there are no hidden clauses in the equity release contract. It could be the case that a contract may be hard to understand or the term is wrapped up in confusing language. It is a legal requirement for clauses to be easily understood by the person that is signing, not just by their lawyer. If the borrower cannot understand the clause then the contract may be deemed unenforceable in a court of law.
Equity Release FeesThere are a huge number of fees connected with equity release plans, much more so than most other financial contracts. These fees will include a set up fee, legal costs, valuation fees and insurance fees. There may also be rental fees, and fees that are applied for early repayment. In most cases these fees will be applied to the actual loan but all of these fees should be marked down in the equity release contract.
No Negative Equity GuaranteeAnother important condition that should be included in any equity release contract is a no negative equity guarantee. Placing this guarantee into the contract will means that you will never actually owe more than the value of your actual home. This will apply no matter what state the stock market is in or if house prices rise or fall.
Equity release contracts are offered by a large number of financial institutions and all will have their own rules and regulations. Anyone considering this type of borrowing should shop around and look for the best deal they can find. Do not simply think that your own bank will give the best deal. Use comparison websites and always take sound financial advice from a professional.