It’s safe to say that owning a home in this economic climate, particularly as a retiree, is a wonderful privilege. Not only has there been a dramatic rise in property prices over recent years, but homeownership gives you some serious options.
With the increasing popularity of equity release in the UK, you now have the option of unlocking the cash tied up into your house, without having to sell or downsize to a smaller, low-cost property.
Sounds like a dream?
Therefore, you might be wondering is it a good idea for you? Luckily, we are here to guide you in making the best decision for you and your family!
In fact, an increasing number of people are opting to raise money for retirement through equity release. In the UK today, a retiree takes out an equity release product every 12 minutes, perhaps you’re next?
What You MUST Know
Before you continue reading, we’ve summed up the most important information about equity release in this quick video. Check it out:
6 benefits of equity release
Is equity release a good move? Equity release has some fantastic benefits, and here they are!
1. It’s Tax-Free
The great thing about equity release is that it’s seen as a loan and not income, therefore making the funds released tax-free.
2. It’s Convenient
Equity release is a reasonably straightforward way to access large amounts of money if you’re over 55. Your financial adviser does the groundwork for you.
In addition, you can release the cash in a lump sum, monthly payments or a combination of both.
Drawdown facilities available on some mortgages allow you to borrow and pay interest only on the amount you need, therefore lowering the costs.
3. You can remain in your home
The great thing about equity release is that you (and your partner) are entitled to remain living on your property as long as you want to. You can stay until you pass away or move into a permanent care facility.
If you wish to, you can also use the funds to hire in-house care, should this be required.
According to the American Psychological Association (APA), selling your home and moving to an unfamiliar place can be emotionally and physically draining. It’s no wonder then that getting to stay in your beloved home is one of the primary benefits of taking out an equity release plan.
Learn more about: 12 Popular Equity Release Uses
4. You’ll Never Go into Negative Equity
As per laws set out by the Equity Release Council, you will never go into negative equity. Your family will not pay more than the sale value of your home when the plan ends.
Even if property prices drop, any additional equity release debt will be written off.
5. You Don’t Have to Make Repayments
You never have to make any repayments with equity release. The loan, plus interest, is paid back through the sale of your house.
However, there is flexibility. Should you wish to, you can make monthly interest repayments. This will stop the interest compounding too much and likely result in more income left to your family.
6. You Can Protect a Portion of the Value of Your Home to Pass On
Some equity release providers allow you to set a certain percentage of the house that is then guaranteed to be passed onto your family.
Take note: this may affect your interest rates and the amount of equity you can release.
4 Equity Release Disadvantages
In addition to these 6 benefits, there are 4 disadvantages to be aware of. Here they are!
Also check out: 8 Equity Release Pitfalls People ALWAYS Get Wrong
1. It May be Costly to Arrange
There are some costs involved with equity release that you need to be aware of. In total, releasing equity from your home can cost you anything from £1500 to £3000.
These costs will vary, depending on your selected provider and plan, and the cost of your adviser. You can generally pay these fees from the money released from your home.
It’s all here: The Costs Involved in Releasing Equity in 2021
2. It May Make Remortgaging Difficult
Releasing equity from your home may make it more difficult to remortgage your property in the future as it may cause you to have a charge against your property.
In addition, there are usually early repayment charges. It’s best to inquire about these in advance, before agreeing to release equity from your home.
3. It May Affect your Benefits
Equity release can increase the amount of cash in your savings. Therefore, there’s potential that you won’t qualify for benefits like council tax credit or a pension after you have released equity from your home.
4. It Might Erode the Value of Your Inheritance
When you unlock cash tied up into your home through equity release, you are essentially using your assets instead of leaving them to your family.
If you release equity and the total sale of your home covers the loan, then there will be nothing left to inherit if you don’t, of course, have additional assets.
Am I Protected When Using Equity Release?
The short answer is YES!
In the past, equity release was not regulated, and there were many dubious lenders taking advantage of older folks.
Luckily, the Equity Release Council now regulates this product. Ensuring that you, the client, is sufficiently protected.
TOP TIP: You MUST use a lender that is a member of the Equity Release Council.
Is Equity Release a Good Idea for Me?
Are you over the age of 55? Do you own your property or have only a small mortgage, but are cash strapped?
If so, then equity release might be the answer you have been looking for. You might also want to discover the equity release alternatives before making your final decision.
In addition, some reasons to consider equity release include:
- Your financial adviser has said it’s the best option for you and your home.
- You don’t have sufficient funds to retire.
- You are not keen on downsizing.
- You have no one to leave your money to, or you don’t mind reducing your inheritance.
Here are the reasons to consider an alternative:
- Your financial adviser has said that equity release isn’t a good option for you.
- You have other means of income that you can use to fund your retirement.
- You are keen to move into a smaller or cheaper property.
- You desire to give your family optimal inheritance when you pass away.
How to Decide if Equity Release is Right for You
To decide if equity release is the right thing for you, book an appointment with your private financial adviser.
Your adviser will look at all your circumstances to help determine if equity release is the optimal cause of action.
Should I Rent or Buy a House?
Whether you rent or buy is often determined by your financial circumstances.
With renting, you are essentially paying off someone else’s mortgage, whereas you are accumulating your own asset by buying.
The benefit of renting is that you have the freedom to move around when your lease expired. On the other hand, you can rent out your investment property as an additional form of income.
So is Equity Release a Good Thing?
Equity release can be a brilliant financial product for retirees who own their homes.
So YES, under the right circumstances, it can be a great thing!
Just be sure to start the process by speaking to an independent financial adviser, and use a provider that is a member of the Equity Release Council.
Got Questions? Check These Out First
Am I Protected When Using Equity Release?
Yes, you are protected when releasing equity from your home if you select a provider that is a member of the Equity Release Council.
What are the Advantages of Equity Release?
Equity release allows you to unlock tax-free income tied up into your home, giving you a financially free retirement.
Is Equity Release Worth Considering?
If you have no other means to fund your retirement, then equity release is definitely worth considering.
Can I End a Lifetime Mortgage Early?
In most cases, you can end a lifetime mortgage early due to unforeseen circumstances. However, there are likely to be early repayment penalties. It would be best if you inquired about these in advance before releasing equity.
Is Equity Release a Good Idea?
It’s safe to say that there is nothing more stressful than having financial concerns. The last thing that you want for your retirement is to focus on juggling limited funds while trying to cover household expenses.
Equity release is a fantastic way for you to have enough cash during your retirement, and should you wish to, you can still take out a plan to leave your family inheritance.
Be sure to use our free online calculator to find how much equity you can release! In addition, consult with a financial advisor to start your equity release journey. You can also chat with an independent adviser for free!