I think you’ll agree with me when I say…
Currently owning a house with the dramatic rise in UK property prices over recent years makes you one of the luckiest retirees on earth.
Well, with the invention of equity release, you now have the option of unlocking the cash tied up in your house, without you having to sell or downsize to a smaller, low-cost property.
In fact, thousands of people are opting to raise money for retirement through these schemes – and in the UK today, retirees are taking out an equity release every 12 minutes.
What are you waiting for?
Get the Retirement You Deserve
With the upgrades in medical technology and increasing numbers using fitness centers, the life time expectancy rate in the UK has risen from 74 years (in 1980) to 81 years (currently). Meaning most are living way past their retirement.
That said, retirement is an exciting prospect, but it is also one of the most potentially challenging phases in human life when it comes to money – especially if your pension does not cover all you need it to and you have no idea how to make up the shortfall.
Through releasing equity, you can get a tax-free lump sum1 or smaller cash injections to top up your pension. This way, you can maintain your lifestyle, and since there are no limitations to how you spend the cash you release, you can pay that vacation, start up a small business and even help out your family.
The most common from is a mortgage that isn’t paid off until you die.
However, in as much as it can be your a great option, it has some limitations & pitfalls.
Thus begging the question, is equity release good or bad?
Attractive Benefits of Equity Release
Equity release schemes are rapidly becoming the most sought after way to release the equity from the fixed value of your house. You can enjoy the perks of having built such equity, while still maintaining ownership of your estate. The beauty of it all is that there two incredible ways to do this.
You can choose to either take out a life time mortgage which involves taking a secured fixed loan to pay on your property or a home reversion2 company that comprises selling a portion of your property.
These schemes give you the financial freedom to take money from the equity of your house and spend it as you wish,
A home reversion company even goes as far as offering you a warranty of leaving a percentage of your property to your beneficiaries.
You can choose to make repayments or let the monthly interest roll-up.3 The loan and any accrued interest are paid back when you die or when you move into long-term care, provided the property remains your main residence and you abide by terms and conditions of your contract (Equity Release Council Standard). Interest rates pay can be as low as 3.4pc and are usually fixed for the life of the loan.
Usually, you don’t have to make any repayments while you’re alive, interest pay “rolls up” (unpaid monthly interest is added to the loan amount). (Equity Release Council Standard).
This means the debt can increase quite quickly over a period of time.
You may qualify for an enhanced lifetime mortgage4 if you have a serious health condition or an unhealthy habit, like smoking.
Your state of health is also taken into account.
The product has a “no negative equity guarantee”.5 This means when your property is sold, and agents and solicitors fees have been paid, even if the amount left is not enough to repay the outstanding loan to your provider. (Equity Release Council Standard)
If you’re still asking is equity release a good thing? That’s not all.
There are more benefits to taking out equity release, thus an ideal choice for anyone above 55+, strapped for cash, and owns a house. They include:
1. You Get to Stay in Your Home
It is one of the top benefits of taking out an release plan. According to the American Psychological Association (APA), selling your home and moving to an unfamiliar place can be emotionally as well as physically draining.
Most don’t want to be separated from their long-term friends and other members and would prefer to stay close to them. You might even need that extra room to have cocktails and barbeque Sundays with friends. Moreover, when the grandchildren come over for the summer vacations, they will need that spare bedroom you have currently, so downsizing might not be the ideal solution.
There are also costs involved in moving: solicitors’ fees, removal costs, stamp duty and the emotional price of uprooting from a place you have spent the majority of your life bringing up your children and creating memories with your friends and neighbours.
By taking out an equity release, you will be able to maintain your independence and the right to remain in your family home until you die or need to move into long-term care.
You hace the right to move to another property subject to the new property being acceptable to your product provider as continuing security for your equity release loan (Equity Release Council Standard).
if you do have people to pass assets to, equity release generally means there will be less for them to inherit.
2. You Get to Live a Life of Luxury
Equity release, unlike other financial products that demand you to write a business plan, allows you to enjoy your cash as you wish.
It aids you in fulfilling your dreams. Whether you need to on vacations to foreign and exotic locations, purchase a car, or even carry out the much-needed home improvements. Having a lifetime mortgage or home reversion plan gives you the financial freedom to pay this.
You have the right to remain in your property for life or until you die or need to move to long-term care, or if you want to move to a new property.
To others, equity release is a way of gifting to the children now, rather than later and happily seeing them enjoy bringing up their children without the financial constraints that the modern society is currently imposing.
For many, they feel that they have worked hard for their money and want to spend it themselves. Some don’t want to leave an inheritance or don’t want it all to go to a charity, so they’d rather have the money now and spend it as they wish.
The money you receive from equity release might affect your entitlement to state benefits, and also you need to look at how it will affect your future choices and financial situation in later life.
3. Guaranteed Returns
Equity release gives you the benefit of having a warranty, it can be the warranted fixed rates for life on the lifetime mortgage scheme or the no negative equity guarantee that ensures that any equity release scheme is adhering to Safe Home Income Plan (SHIP) regulations. Without that guarantee, you or your beneficiaries would have to pay the difference between the amount the property was sold and the remainder of what you owe.
The no negative equity ensures that your heirs cannot ever incur any debt over & above the property market value once you have died or moved into long term care.
These are some but a few of the benefits of taking out an equity release, thus making it one of the best decisions you will ever make!
Taking out equity on your family home can be a nerve-wracking decision to make, but you should never be taken without an independent adviser provider. However, with the stipulated rules and monitored transactions, you need not worry. Equity release can be one of the smartest decisions you will ever make, and with all the benefits you are bound to gain, your retirement can be your golden age, literally.
The loan amount accrues interest, which if you decide not to repay over its course “rolls up”, this type of lifetime mortgage is called an interest roll-up mortgage. This accrued interest is referred to as compounding interest and essentially means you end up paying interest on the interest.
When considering equity release, you need to think about the effect of interest charges on the amount you owe. Unlike a traditional mortgage, the interest period is open-ended. You need to think about the effect of interest charges on the amount you owe.
So, what are you waiting for, give your financial independent adviser provider search a call today and make your retirement as comfortable as it can ever be! Searches the whole of market, so they can find the right plan for you.
The maximum percentage you can borrow. You can normally borrow up to 60% of the value of your property, depending on your lender. The percentage typically increases according to your age, while some providers might offer larger sums to those with certain present medical conditions. Being older with medical conditions could mean a lender gives you more than if you are 55 in good health
Don’t borrow the amount you need on the go, the sooner you borrow, the more expensive it is. So borrow as little as you need now. Ask both a financial adviser and a solicitor to study the contract for you to ensure that it is in your best interest.
If you need more information on equity release and other plans, be sure to click here and find how much equity you can release and also get to chat with an independent adviser provider for free.
All advisers recommending equity release schemes must have a specialist qualification.
Yes, it can be the smartest financial decision you’ve ever made – if you’re looking to release tax-free cash without worrying about monthly repayments. Nonetheless, it might not be the ideal option if you’re going to leave a significant amount of inheritance to your family – equity release reduces the inheritance amount.
Learn More: Is It A Good Idea?
Equity release is a financial plan that enables homeowners aged 55 and above to unlock the equity tied up in their residence by turning it into a lump sum or steady stream of income.
It also enables them to continue living in their house and make no monthly repayments until they die or move into residential care.
Learn More: What Is Equity Release?
Typically, there are two types of equity release products: lifetime mortgages and home reversion plans. Nonetheless, there are several lifetime mortgage plans. They include schemes like the:
- Interest-only lifetime mortgage
- Enhanced lifetime mortgage
- Lump-sum lifetime mortgage
- Buy-to-let lifetime mortgage
- Voluntary repayment option
Learn More: Types of Equity Release
Essentially, there are two main types of equity release plans: lifetime mortgages and home reversion plans. Lifetime mortgages are divided into various options like the:
- Income lifetime mortgage
- Drawdown lifetime mortgage
- Retirement interest-only lifetime mortgage
- Impaired lifetime mortgage
Learn More: Types of Equity Release
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.