I think you’ll agree with me when I say…
Parting with your residence can be emotionally stressful, especially when you have dependents.
Well, it turns out that equity release is not the only solution to your financial constraints. There are ten options you can make your mind up on to consider before making the difficult decision of taking out an equity release plan.
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The 10 Alternatives to Equity Release
While it is true, that many people use equity release schemes every year to reserved from home improvement, opening up a small business, repaying debts owed, and round-the-world trips – but it’s certainly not for everyone.
Having financial freedom is, something everyone wants in their lifetime, but as much equity release may look like your only way out, it’s always essential to weigh up the pros and cons before you raise cash that way.
The options and the amount of money that is available to you will depend on a number of factors, including your age, health and a number of other considerations.
Home reversion is an older plan but is still catered by a couple of providers. With the home reversion plan, you sell a part of your home to a provider for less than the market value in trade off for a lump sum or a regular income. You may be able to buy back the share you sold at a later date but only at the full market value.
Lifetime mortgages are the most common type of equity release. It does not incur any regular repayments, and the interest is not repaid until the property is sold. Lifetime mortgage is approved by the Equity Release Council.
Take a moment and assess your property’s worth. Do you think you can you sell your current or latest home and acquire a smaller property or realty in a cheaper area?
Well, once your kids are grown up, and they move out, you’ll have more space in your home than you need. That is when downsizing to a smaller property becomes a viable option. It is possible even if you have already released equity in the form of a lifetime mortgage.
It is one of the more popular ways or means of gathering up some extra cash in the England today. In fact, according to a report by a major insurance organisation, nearly two in five over-55s – up to 3.5 million homeowners – plan on selling their houses and expect to raise around an average amount of £88,000. Over 78% of the over-55 homeowners planning to sell say that the goal of downsizing is to release equity.
So, what are the conditions for downsizing?
- If your home seems like it is too big for you
- If it is an older property that requires constant maintenance
- If the realty is expensive to run
- If you want to move to a different region
However, in as much as it is the right move for you to make, very few homeowners can finance their retirement solely by downsizing, and it also has some disadvantages such as:
- If perhaps, the property commerce is falling at the point or time when you settle to sell your realty, you might not be paid as much cash as you may have anticipated.
- Additionally, it can also take you months and year on to find a perfect buyer or a place to relocate.
- Downsizing also forces you to let go of your familiar and longstanding residence, a circumstance that might be an emotional stressor to some people and even their own household.
- There are also some cost-related considerations when down-sizing like: realtor agent’s fees, legal fees, moving costs, re-decorating, replacing furniture, and stamp duty.
2. Ask Your Friends and Family for Financial Help
Sit down and assess whether your relatives and friends can give and share assistance. If they can, then do not shy away from asking for their much-needed help.
Some friends or relatives can send some money your way, but you should also make sure that you are both clear about whether you are receiving the cash as a gift or a loan so that you can avoid any awkwardness in the future.
You can also choose the option of asking some of your relatives to secure the realty (or segment of it) and then sign a long-term lease to keep on residing there.
- However, in as much as that sounds like the prime deal, it is not as straightforward and can lead to potential complications in the future. For example–If your son or daughter were to buy the home, and is then declared bankrupt, you could be evicted since you are only a tenant or renting.
- Perhaps, their marriages were to break down; the house could be disputed in any divorce hearings.
Some very complex tax circumstances might also arise, primarily if you sold the property for a discounted amount. In such circumstance, the taxman and the relevant government firm could assume that you have successfully given a proportion of your realty away, and thus it would be considered part of the taxable property at death.
Therefore, before you consider asking your relatives to buy your property, it is vital that you take proper legal,terms and tax advice from your lawyer or registered property manager.
3. Use Your Savings & Other Investments
Do you have any assets, a good sum of money or a savings account in your bank? If yes, are they sufficient to give or share you the lump sum or extra income you require?
If so, consider using these first, and postpone taking out an equity release. However, in as much as you might be desperate for the cash, always make sure you provide and keep aside an emergency supply for life’s essentials and for you to be assured with adequate amount behind you in the bank.
If you have any resources, it might be an essential plan to seek professional help before doing anything. Some properties might be untaxed, as the ISA, or maybe you have some cash semi-locked up in specialised financial products.
If so, selling or accessing the money without proper planning, might mean you are leaving money on the table or form.
4. Take in Tenants
Are you comfortable to live with strangers? Do you have an Airbnb account? If you answered yes then why not get down to registering the part, like a room in your home you want to lease out for a few months? You can even rent one of the rooms out to a foreign exchange student over the summer, and under the government’s Rent a Room Scheme you can easily earn up an amount of £7,500 a year from a tenant or renting before any tax is due on the proceeds.
Thus, it not only brings you in the much-needed extra money but also allows you to remain in the property, but also allows you to meet new people and learn about their cultures, which can be an exciting adventure in your retirement.
The downside to this alternative, however, is that your house may not be familiar like your own, and you might probably not be up for the hassle that could come with having a lodger.
5. Are You Claiming All the State Benefits You’re Entitled To?
Before you make an irreversible resolution by borrowing or taking out an equity release scheme, make sure that you check if you are eligible and suitable for any federal benefits that you might be entitled to. You might also want to consider visiting your government firm to see whether you can claim or rights any means-tested benefits like pension or saving credit, disability benefits, or council tax reduction benefits. These benefits could increase your income or aid with home improvements.
6. How About Re-Mortgaging?
Can you borrow the money you require from another source, like say, a bank?
Well, even if you are retired, you can still borrow against the number of your realty. You could either take out a loan against the value of your home; or re-mortgage your house either as part of a credit agreement or a typical residential mortgage.
Re-mortgaging is often overlooked by those considering gathering up some money for their retirement.
In as much as some mortgage providers do not love dealing with retirees, some accommodate the project. All you have to do is call your homeland mortgage provider and see if they will help out.
It would be best if you came up with a dependable and contractual plan of payment, maybe like monthly repayments mortgage.
The advantage of re-mortgaging is that the interest rate is usually downsize or lower than that of an equity release deal and you are offered far more flexibility. So if you want to withdraw the mortgages or refinance it in 2-3 years, the repayment penalties are usually reasonable. It is also less disruptive than moving.
However, in as much as it is the prime deal, if you don’t care or cannot keep up with the repayments mortgage, there is always a risk of your home being repossessed.
7. Reduce Your Expenditure
Most people take out equity release to maintain their way of life– rather than as a way of producing assets needed just to get by.
So, if you are struggling to live within your means in retirement, you could begin by analysing your expenditure to see if there are any areas where you could cut back.
Making cutbacks in your normal or regular life like shopping around for cheaper utilities, reviewing house & car insurance or even shopping habits, can go a long way towards bridging the shortfall that exists and thus allowing you to take care and keep your home and sanity.
8. Get a Part-Time Job
If you are still up for some running around, you can always get a part-time work. You can choose to be an expert adviser in your work towards setting up that business you have always wanted to own. It is best and top way of keeping you active and healthy, getting a fresh perspective of things, and allowing you to preserve your lifestyle.
9. Check Your Eligibility for Local Grants to Improve Your Property
Most government authorities offer grants to assist with the cost of home improvements. However, the number you get and availability depends on the internal body itself. So before you go for equity release, do some research and find out what your district town can offer you.
10. Consider Other Types of Finance
Depending on your disposable income and maturity, individual financial institutions can still offer you conventional personal loans, credit cards, or installment-payment plan. These might make you incur additional monthly expenses & because of maturity, may only be available for a short time.
So, if they are an option, make sure they will be affordable for the whole time and not just the present. If you need more information to make sure you understand how do equity release schemes work?
Most people often want the finest of both worlds – to continue to manage in our current health or states or time while also having some more money in their pocket for a stellar at life and adventures. Sadly, for many, this isn’t possible, and thus they make some difficult choices, one of them being equity release, which may eventually lead to the loss of parentage property.
So instead of jumping to a conclusion and taking out an equity release, make sure that you make a prudent judgement. Remember first to do everything possible to downsize, reduce or limit your debt burden.
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How much money could you release?
An equity release allows you to access the value of your home, tax-free without having to sell up, so that you can have money to spend on whatever you want or need.