We all daydream about what we’d do if we suddenly had a large sum of money to spend as we desire. You may be dreaming of improving your home by refurbishing your kitchen or by having your backyard professionally landscaped. How about taking an extended vacation or starting a new business venture? When we dream, we tend to dream big!
And the good news?
With an equity release, you can make all your dreams come true! You can access a large sum of cash and use it as you wish!
What is Equity Release?
Equity refers to the portion of your home loan that you’ve already paid off. It’s the difference between your home’s value and how much you still owe.
Equity grows as you pay your home loan off, and as the value of your home increases. When you release equity, you take out a large sum of cash based on this value.
Most people use equity release as their saving grace in retirement, as it allows them to access a large sum of cash to make their dreams a reality.
You can access or release your home equity, turn it into a cash lump sum, or several smaller payments or a combination of both.
Equity release is often the best choice, as it’s more suited to cover large expenses or supplement your retirement. Interest rates on credit cards and personal loans could be higher and more costly in the long run when compared to equity release rates.
But as with every good thing, there are risks involved. Economic downturns can decrease your home’s value, which could lead to you having to pay more than what your home is worth. Be aware that there’s also a limit to the amount of money you can access.
The Most Common Equity Release Uses
Let’s look at the most common uses for equity release funds:
Use #1. Home Improvements
One of the most popular reasons that people relase equity is to fund home improvements. You may wish to improve your quality of living or increase the value of your home for resale, either way releasing equity is ideal for this purpose.
Popular renovations include kitchen or bathroom remodeling and investing in solar panels. Investments in the home’s outdoor aspects include having a swimming pool or patio built, a new roof, or improving the landscape. These investments usually pay for themselves when selling the home.
But wait, let me tell you something
Before taking an equity release, be sure to do your research and fully understand the pros and cons of doing so. It’s essential to know if your improvements or purchases will increase the value of your home.
Use #2. Paying for University Fees
The maximum cost to attend university in the UK is £9 250.00 ¹ per year for an undergraduate degree. You can take out student loans to pay for it, but if the lender approves and mortgage rates are lower than the student loan rates, you may want to consider taking an equity release to save money.
What to consider:
- Understand all the terms and conditions regarding student loans and equity loans.
- Can you afford the monthly payments?
- Student loans can affect your credit, but you could lose your house if you cannot afford the mortgage payment.
- Compare interest rates between the student loans and the home equity loan. The lowest rate will be a better option.
- Do your research! Get familiar with all your options to make an informed decision.
Use #3. Consolidate Your Debt
There is nothing more stressful than retiring, knowing you have outstanding debts such as credit cards, home loans, and personal loans. Loan repayments have high-interest rates, and loan arrangements can be costly. Monthly payments will be a struggle when your pensionable income reduces over time.
One way of overcoming financial stress in retirement is by getting cash released from your property to help you settle these debts. By using an equity release plan, you will have no monthly instalments. You’ll enjoy your retirement and not have to be concerned about repaying the money, as the funds will be repayable when you sell your property or when you die.
In case you might be asking yourself
Consolidating your debt can be a risky option if you don’t plan your finances correctly. Avoid unnecessary spending and creating new debt that you can’t pay at a later stage.
Use #4. Pay for Your Wedding Expenses
Married couples will tell you how expensive it can be getting married. Weddings can cost on average around £17 000 ² and much more if you want a honeymoon. If you already own your home before you get married, this may be an option for you if you don’t have other income sources.
Most couples will create debt by depleting their savings, maxing out their credit cards, or taking personal loans to pay for their wedding. An equity release could be what you need. Interest rates are locked in, and you will not have to break the bank to pay for your big day.
What to consider:
- Interest rates will not fluctuate when taking out an equity release. You never have to concern yourself with fluctuating payments every month.
- Find ways to save on your wedding costs.
- Budget wisely, and don’t take more than what you need.
- If you choose a home equity loan, be sure to afford the payments as your house is collateral.
Use #5. Business Investing and Expenses
Starting a new business can be costly, but it can also be a wise investment for your future. Using an equity release plan can get that idea of yours off the ground or invest in a friend or family member’s business.
An equity release can still be a costly decision, as the return on this investment will need to be more than the interest charged on your loan. If your profits are lower, you may not recover any of your money. Understanding the risks involved is essential, so be sure to get advice from a financial expert before making this decision.
Perhaps you are already a business owner and need to grow your business. Using your home equity could save you money, as the interest might be less than what a business loan would’ve been.
Use #6. Emergency Expenses
We should have an emergency fund with at least three to six months of living expenses saved.
Life happens, and most people aren’t able to save for emergencies.
An emergency can be anything from a medical emergency to unexpectedly being unemployed. Applying for an equity release can help you get through this uncertain time until your situation improves.
Even though you have access to your home equity in emergencies, it doesn’t mean you shouldn’t set up an emergency fund for further emergency expenses! Equity release applications can be lengthy processes and might not always be the best solution for an emergency.
Use #7. Improve Your Lifestyle
The word retirement makes one think of relaxed days living in a house on the beach, playing golf every day, and taking holiday cruises for quick getaways. This life of luxury is, unfortunately, far from the truth for many retirees. You might own property, but you won’t have cash on hand to live the luxurious life you crave in retirement.
What does this mean for you?
Retirees, especially those who have no debt or large financial commitments, can tap into the cash from an equity release to live their final years how they please. They can improve their lives by taking expensive vacations anywhere in the world, buying a new car or second home, or even getting new teeth or prosthetic limbs!
We are all permitted to live the life we desire in our retirement. The possibilities are endless, with equity release loans.
Use #8. Help Your Close Family
Times are tough, and it is proving to be more difficult for the younger generation to purchase property without their parents’ help. Unfortunately, parents may not always have the means to help their children, making anyone feel hopeless.
Parents want to see their kids be prosperous, and one way they can help is by obtaining an equity release. An equity release will release funds from the parent’s property. They will be in the position to invest in their children’s lives by purchasing property for them or helping pay towards a deposit on a property.
As if that’s not enough
Another reason for using an equity release for a child is to pay off their student loan. Having no student loan debt will significantly benefit your child, as they won’t be struggling to pay off this loan for years to come.
Grandparents who want to help their grandchildren get a start in life can also use an equity release. The grandchildren can earn an early inheritance from their grandparents.
Make sure to distinguish to your family member whether the money you give is a gift or a loan to avoid any uncertainty and arguments in the future.
Use #9. Update Your Image and Upgrade Pricey Items
You might prefer to have the latest technology and gadgets to use. Having new and improved items will mean that you can enjoy these items for longer and not have to worry about your smartphone being too outdated and slow or your laptop heating up too quickly.
An equity release frees up money to upgrade your devices, and you won’t have to deal with outdated and slow gadgets.
You could also upgrade your home entertainment system to something better or buy new clothes and shoes to upgrade your wardrobe and give your image a more modern look.
Use #10. Care Costs and Mobility Equipment
As we grow old, we need to take better care of ourselves. Rising costs make it difficult for most of the population to afford at-home tasks, such as cleaning, cooking, and dressing.
Equity release can be the answer. You can hire a cleaning service to keep your home clean, and you can look into getting meal prep delivery straight to your door. You will not have to rely on family or friends to take care of you, and you’ll have the dignity and comfort to live your life as needed.
As if that’s not enough
Employ a handyman a couple of times a month to help maintain your house. They’ll be able to do all the minor repairs that you may find challenging to do yourself.
The ability to move around with little effort can become an issue as we age and our bodies start to let us down. You will need to find ways to get mobile around your house, at the store, or while you are traveling.
But wait, let me tell you something
Using the equity release option can make you more mobile by installing a stairlift, getting a mobility scooter, or adapting your car to use more comfortably. Hiring a driver can also be beneficial for your shopping days.
You won’t have to live your life being held back because of mobility issues or concern yourself with how you will take care of yourself in your home.
You can use this equity when you sell your property and move to a bigger one which costs more. You can also use it to pay for home renovations, help pay off other debts or to help provide for your retirement.
Yes, you can move house when you have an ongoing equity release plan. However, you’ll need to move your equity plan to that new house and have your provider approve it.
Well, it depends what you use your equity for. If you release equity in order to help out your heirs while you’re still alaive, then yes.
No, you don’t have to use your release funds for renovating or doing something on your property. You can use it for anything you want to. You can buy a car, you can go overseas or whatever you need to buy.
An equity release can be the best solution for you to improve your lifestyle or to have a little fun, as it gives you the flexibility to spend your money, however you want. There isn’t the best way to spend your money – only you will know what is best for you and your family.
Whether you choose to pay off your debt or do some home renovations, equity release loans can be a terrific option for you. Be sure to research and understand all the pros and cons before taking out the loan. Speak to a financial professional who will give you the best advice for your situation.