Alternatives to Equity Release
You’re over 55 and ready to stop working, but you’re worried that you won’t have enough money to live a comfortable retirement?
You’ve heard of equity release, but you’re not convinced it’s the right option for you.
What else can you do?
You’re in luck!
As experts in our field, we discuss the following in this article:
We have done our research on alternative options to equity release and gathered it all together in this handy article for you.
Whether you borrow money from your family, get a grant from the government, or start your own business, there’s bound to be an alternative that’s just right for you.
Have a look for yourself.
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What’s Equity Release?
Equity release is a way for you, as a retiree over 55, to access money that’s held up in the value of your home.
You can do this either with a lifetime mortgage or a home reversion plan.
Depending on your plan, you will either borrow money from or sell part of your home to an equity release provider in exchange for a cash lump sum, regular installments, or possibly both.
Alternatives to Equity Release
Equity release does sound like an attractive option, and it can be, but the only way you will know is by exploring all of your alternatives.
Let’s have a look at what those might be.
Explore Mortgage Options
Equity release is a type of mortgage, but it works quite differently from the standard everyday mortgage we all know about.
Before committing to equity release, you might want to look at these options.
Remortgage Your Property
Remortgaging your property is a great way to release some of the value of your home – either with your existing provider or with a new one.
It’s often a cheaper option than equity release, but it can be challenging to qualify for in later life.
Extend Your Mortgage Term
If you still have a mortgage when you retire, you could ask your provider to extend your term by an extra 5 or 10 years.
If they agree, it could mean a decrease in your monthly repayments.
You’ll have to see if your provider has an upper age limit on their mortgage options.
Depending on your provider – this can range from 65 to 85.
Take Out a Retirement Interest-Only Mortgage
If upper age limits become a problem for you, you could look into a retirement interest-only mortgage.
With an RIO mortgage, you will only be required to pay back the interest on your loan, while the capital will only be due for payment when you pass away or move into permanent care.
This type of mortgage has no upper age limit, making it an accessible option for older lenders.
There’s no shame in borrowing money from your family, friends, or bank.
Let’s look at some of the borrowing options that could work for you.
Borrow Money From Family or Friends
There has always been a stigma around borrowing money from family and friends, but sometimes it’s your best option.
Look at it this way; it’s an interest-free loan that has nothing to do with your home.
Chances are, your family will be more than willing to lend you some money, so if the option is there, then take it.
What have you got to lose?
Just make sure that the lending terms are clear to all parties involved.
Are they expecting you to pay it back, or is it a gift?
Will they let you pay it back in installments over some time?
If so, how long?
Be sure to run through all the nitty-gritty before saying yes.
Get a Credit Card
If you’re looking to access a relatively small amount of money for a short period, you might consider getting a credit card.
The credit card market is hugely competitive, with some companies not charging any monthly interest.
Do enough research, and you might just hit the jackpot!
This could be your answer to reaching that short-term financial goal.
Take Out a Secured Loan
A secured loan is a credit agreement that uses your home as security against the amount you borrow.
Depending on what you want to borrow, you could use other assets as security – such as a car or jewellery.
The good news is that interest rates on secured loans tend to be lower than those charged on other loans.
The bad news is that the provider can repossess your asset should you default on your payments.
Make sure you have the means to keep up with your repayments!
Take Out a Personal Loan
A personal loan – also known as an unsecured loan – allows you to borrow the money – often a smaller amount than a secured loan – without offering any of your assets up as security.
You essentially borrow money from a bank or a loan provider and agree to repay the amount, plus interest, over regular installments.
If you happen to be a little late with a payment or miss one altogether, you could be in for penalty fees.
Interest rates on personal loans tend to be higher than those on secured loans due to the risk involved for the providers.
Take Out a Home Improvement Loan
Whether you’re dying to get that dream kitchen or your home needs a facelift, consider a home improvement loan before heading down the equity release route.
A home improvement loan is essentially a personal loan with a different name.
The best part?
If you have a good credit score and your application is approved,
Then the loan amount will be paid straight into your account; and you don’t even have to spend it all on your home improvements.
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Determine Your Eligibility for Grants & Benefits
It’s no secret that money can be tight when you’re living on a state pension.
Did you know that an estimated £3.5bn worth of grants and benefits go unclaimed each year in the UK?
All the more reason to check your eligibility!
Check Your Grant Eligibility
Do you need to have your boiler fixed or have your home insulation looked at?
You may be able to get a government grant to do just that.
With energy efficiency being top of everyone’s radars, governments are keen to offer their support.
Check with your local council to see if you qualify for their home energy grants.
Check Your Entitlement to Benefits
Did you know that you could be claiming benefits if you’re of retirement age in the UK?
On top of your state pension, you could be entitled to some or all of the following:
- Income Benefits
- NHS Benefits
- Carer Benefits¹
- Energy Benefits
- Transport Benefits
- Bereavement Benefits
Do your research and make sure you’re claiming for everything you are entitled to.
Contact Your Local Authority
Something worth doing is contacting your local authority.
Well, you might just qualify for assistance with your home improvements.
Examples of improvements could be installing a wetroom or making your home more accessible by installing a ramp.
The assistance could be in the form of a grant or loan or even providing labour for the repairs and improvements that need to be made.
Do You Have Deferred Pension Arrangements?
Did you take your pension when you stopped working?
If not, you could claim your deferred pension as a lump sum or regular payments.
The best part about a deferred pension is that the longer you delay taking it, the more it increases in value.
It would make sense to leave it where it is until you need the money.
Review Your Budget
Whenever you need some extra money, the first – and best – place to start is with your existing budget.
See if you can tighten your belt a little or release some savings to access the amount you need.
Let’s look into this a bit more.
Use Savings & Investments
Using existing savings and investments is a quick and easy way to access money.
Be sure to find out whether withdrawing your money will incur penalties – this is usually the case with medium to long-term investments.
Maximise Your Cash & Investments
Speak to an adviser about refocusing the money in your existing investment portfolios on funds and shares that are more income-focused.
You may even be able to look into borrowing money from building societies or banks against your portfolio of assets.
Adjust Your Spending Habits
Sit down carefully and run through your budget.
Make sure that you live within your means and try to identify areas of unnecessary spending.
Here are 10 easy things you can do to adjust your spending habits:
- Make a budget
- Check every purchase – do you need it?
- Look out for extra fees or hidden charges
- Save on electricity by switching off lights
- Plan your meals & only buy what you need
- Limit luxury beverages
- Use what you have
- Pay in cash instead of by card
- Look out for discounts wherever possible
- Scrutinise your direct debits
Get Advice From a Financial Advisor
It’s second nature to call for help from the experts when a car breaks down, or the heating stops working.
For some reason calling a financial advisor is never the first option when the wheels fall off the budget cart!
A financial advisor will be able to teach you how to manage your money and recommend financial products and services that could benefit you.
They will help you make the best decisions based on your unique circumstances.
Consider Your Home Options
Sometimes a solution can be found right under your roof – literally!
Rent Out a Room
You know that your house is too big for you, but you’re not ready to downsize. Have you considered renting out a room?
Universities and hospitals are often looking for accommodation for students and visiting clinicians.
You could be earning up to £7,500 per year, tax-free for a furnished room under the government’s ‘Rent a Room’ scheme2.
Move Home or Downsize
Moving home or downsizing can be a sensible alternative to equity release.
You could move to a smaller, more manageable home in an area you’ve always dreamed of living in.
The money you release from the sale of your old home can fund your move and any upgrades you want to make to your new home.
Or you could put it away for a rainy day!
Reduce Your Utility Bills
You would be surprised at how much you can save by making minor changes around your house.
Here are some great energy-saving tips:
- Change all your lightbulbs to energy-efficient LEDs3
- Turn off lights that aren’t needed
- Unplug your chargers when not in use
- Update your heating system
- Switch to energy-efficient appliances
- Close the curtains to save on heating
- Watch your water usage
Evaluate Your Income
You may have reached retirement age, but maybe you’re not ready to stop working just yet.
Have an open conversation with your boss and discuss the option to stay on either as a full-time employee or perhaps you could take on a consultation role.
Your employer may even be able to offer you a better position or increase your salary.
It’s very easy to lose touch with the going salary rates when you’ve been with the same company for several years.
Have you looked into the current going rates for your position?
It might be time to look for a new job and increase your income.
Find a Part-Time Job
If you’re retired, you could look for a part-time job in your local community.
There are often such positions available at your local library or local shops.
It’s a great way to keep active and meet new people.
Start Your Own Business
Have you always had a hobby that you hoped would one day pay for itself or even earn you an income?
Well, what better time to live that dream than now?
Identifying a gap in the market and starting your own business will not only keep you busy,
But it can generate some of that much-needed money you were considering getting from a home equity release mortgage.
Sell Some Assets
For many people, their home is their biggest, most valuable asset.
This may be true for you, but don’t overlook some alternative assets you might be able to sell for a profit.
Depending on the type of assets you’d be willing to part with, you could sell them at a car boot sale or contact a specialist to come and value them for you.
You’d be surprised just how much you’d be willing to sell for the right price.
What Are The Alternatives To Equity Release?
The alternatives to equity release range from borrowing money from family or friends to downsizing your home.
You could explore the option of new employment and reduce your utility bills by making a few minor changes.
There are many alternatives to equity release, but your unique financial circumstances will determine the best fit for you.
It’s always a good idea to get specialist advice on the matter.
Why Should You Not Do Equity Release?
You should not do equity release before doing comprehensive research and discussing it with your financial adviser.
Several factors could influence your equity release decision, one of which may be leaving behind an inheritance for your loved ones when you pass away.
Another factor you might consider is that equity release will never pay you the actual market value of your home.
In other words, you will receive less for your property than you would if you were to sell it on the open market.
Is It Better To Release Equity Or Remortgage?
Equity release has the potential to release more equity from your home than remortgaging does. However, remortgaging tends to be the cheaper option overall.
Another consideration is the interest on equity release schemes that can accumulate at an alarming rate, depleting any inheritance you had hoped to leave for loved ones.
Are There Better Alternatives To Equity Release?
There are many alternatives to equity release, but whether they are better on not will depend on your unique set of circumstances.
Some options worth investigating are remortgaging, borrowing money from family or friends, taking out a loan, adjusting your spending habits, and finding ways to increase your income.
There are pros and cons to all of these; the trick is finding what works best for you.
Equity release can be the most logical solution for many people but don’t assume it will work for you.
Many alternatives don’t come with the same downfalls and deserve your consideration.
Everyone’s financial situations differ, and you might find that simply adjusting your spending habits and taking out a personal loan will give you the financial freedom or breathing space you’re looking for.
Equity release has its place, but be sure to speak to an adviser and explore all of your options before committing to anything. It is a life-changing decision that should not be taken lightly.
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