Downsizing or equity release are 2 brilliant options to help you maximise your retirement income.
The great thing about equity release is that it allows you to unlock cash while remaining in your beloved family home. On the contrary, downsizing means selling your property in favour of a smaller or cheaper estate.
Luckily, we are here to help you find the best option to suit your needs!
Continue reading to find out more!
Equity Release & Downsizing
Both downsizing1 and equity release have benefits, but people should carefully consider which one is right for them. Downsizing may be a good option if your children have moved out, leaving you with ample space. On the other hand, An equity release might make sense if you don’t want to let go of your precious home.
What is Downsizing?
Downsizing is when you sell your house and live in a smaller one.
4 Reasons to Downsize:
- You want to enjoy retirement without having massive property maintainance cost.
- You no longer want to clean a massive house or keep a huge garden.
- Your partner died, leaving you alone in a large house.
- Your children have grown up and moved out.
What about Equity Release?
Equity release allows you to unlock cash tied up in your home while still retaining full/or part ownership of your property, depending on the type of equity release you select. Equity release could help with living expenses if:
- The value of your home has increased since it was purchased.
- You have health problems that limit how long you can work before retiring.
- You want to stay in your beloved family home, but still desire a financially stress-free retirement.
Also discover: The Pros and Cons of Equity Release
Releasing Equity as an Alternative to Downsizing
One alternative to downsizing is releasing equity in your home. Equity release is a type of loan that converts the equity in your home into cash to fund retirement.
In addition, you may want to stay in your family home; you can do so with equity release. Have you always dreamed of renovating your space? You can use the equity you have released to do so.
Top Tip: If you renovate your home using equity release and make non-obligatory monthly interest repayments, you could leave your family with additional inheritance. While this is a risk, the renovation could greatly increase the value of your property. If at the time of the sale, property prices skyrocket, this could have a favourable outcome.
Speak to your financial adviser before making any concrete decisions.
One disadvantage is that the interest rate on equity release loans tends to be much higher than traditional mortgages or home improvement loans. However, interest rates are at an all-time low, so you might be able to get a fantastic deal.
How Downsizing Works with Equity Release
Downsizing is a way for seniors to reduce their living expenses with minimal impact on their lifestyle. Downsizing typically involves moving to an apartment or smaller home and having your children take over the mortgage payments.
If your new property has a valuation of at least £70,000, and you have already paid a large amount of the mortgage, you might still be eligible to take out an equity release plan.
3 Important Things to Consider Before You Decide
Whether you downsize or chose equity release, it’s essential to consider the following before you make any commitment:
- What are my long-term goals?
- What is my financial situation (i.e., do I have enough savings or other sources of income already)?
- How much am I willing to spend on a lifestyle that has more room for activity than what would suit me in an apartment or long-term care?
Once you’ve answered these questions, you can decide if downsizing is the right option for you. You may even find some benefits, like being closer to family members or friends who live nearby, which helps keep your social circle intact.
Downsizing or Equity Release?
Downsizing may be necessary if you do not have enough money saved up. You move to a small apartment because it’s more affordable than owning a house.
The downsides include feeling like you need to keep working and retire later. Also, you’ll have less room and flexibility. Depending on what retirement means to you, this might not be the best choice for you.
Equity release allows homeowners over 55 years old who live alone or with another person or spouse3 to access the equity in their home. You can gain financial stability without worrying about how long it will take before you can downsize.
Downsizing takes time, while the equity release process is only 4 to 12-week.
The downside of equity release is that you’re still stuck with upkeep4 costs. If this isn’t ideal for you, then downsizing might just be the answer.
Choosing to downsize or equity release is a big decision, and the right answer is different for each individual. Speak to your financial adviser, who can help you make the correct decision. In addition, there are other equity release alternatives for you to investigate.
How Much Will It Cost to Downsize?
Downsize costs can range wildly depending on the type of downsizing you are looking at. For example, if you downsize to a home that is smaller than your current one, your downside cost will be lower because some things like furniture or decorations might not need to change.
What Happens to My Mortgage and Other Debts When I Downsize?
If you downsize to a more affordable home, your mortgage and other debts will not change. However, you can use the money from the sale of your home to pay off your outstanding debts.
How Do I Know if Downsizing or Equity Release Is Right for Me?
You need to weigh up all the pros and cons and speak to a financial adviser who can help guide you in the right direction.
How Much Does Equity Release Cost?
Equity release costs may vary but are up to around £3,000. In addition, there is compound interest to consider that will be paid from the sale of your home when you die or move into permanent care.
Retirement is an exciting new chapter in life for many people. But, it’s also a time when some of us will have to make difficult decisions about downsizing or taking equity release loans.
Downsizing or equity release are 2 options that you may not have considered when trying to maximize your retirement income. Not only will these strategies help free up some of the assets in your home, but they can also provide a steady stream of monthly income for years into the future!
If you are considering equity release, try out our Equity Release Calculator Under 55 to find out how much cash could be tied up into your home.