You’ll probably agree when I say…
If you’re a homeowner, you’re a lucky retiree nowadays. Why? Well, because property prices have increased dramatically, and being a homeowner gives you excellent financing options.
Think about it:
As equity release is becoming more and more popular, you can now unlock any equity or money that’s tied up in your home or property, but you don’t have to sell it or downsize to a smaller, cheaper house.
And astoundingly, many people are currently taking out equity release plans to save up for their retirement via equity release plans. Roughly every 12 minutes, someone takes out an equity release plan in the UK.
Get that Deserved Retirement
Life expectancy isn’t what it used to be. Now, because people are more focused on healthy living, exercising, and clean diets, life expectancy has risen to 81 years, where it used to be 74! This is also thanks to medicine advancing at an incredible pace. This means that you’re probably going to live very long and have a long retirement!
Let me tell you…
Retirement is very exciting for most people, but it’s also potentially one of the most challenging chapters of a person’s life when it comes to finances. Even more so when your pension income can’t cover all your needs, and there’s no way for you to make up for the lack.
By releasing the equity that’s locked up in your property, you can receive a tax-free lump sum or smaller cash payments to boost your pension. So, when you take out an equity release plan, you can keep your current lifestyle, and pay for your ultimate dream holiday! It’s so easy because there aren’t any limitations on how you should spend the money you release. Some people even start a small business or help their family with a monetary gift.
Best of all.
The most popular type of equity release is a lifetime mortgage. Why is it so great? It doesn’t need to be repaid until you pass away or go into permanent care. But, like everything in life, it comes with some limitations and risks, making it vital to know what are the pitfalls of equity release.
Thus, bringing up the question, is equity release a good idea?
3 Equity Release Benefits
Equity release plans are becoming the most popular way to release the money tied up in your home. You can get all the perks of that equity, yet maintain ownership of your property. There are two very flexible ways to do so:
- You can choose a life which works by taking a secured property-based loan.
- You can choose a home reversionplan which works by selling a portion of your property to an equity release company.
These plans give you the financial freedom to take cash from the equity in your home and spend it any way you like.
It gets better!
A home reversion provider sometimes allows you to ring-fence some value of your home. That way, you can be sure that your heirs will get a portion when you’ve passed on. You can repay by making payments towards the loan interest or letting the monthly interest roll up.
The loan plus accrued interest are repaid when you pass away or when you move into permanent care, only if the property is your primary home throughout the plan. You also need to abide by your provider’s terms and conditions.
Nowadays, interest rates are astonishingly low, some as low as 2.25%! And they’re usually fixed for the period of the loan. For the most part, providers don’t require early repayments, but the interest will “roll up” (meaning any unpaid monthly interest get added to the loan total). So, your loan can increase quite rapidly over some time.
But, that’s not all.
Your health condition is also taken into consideration when you’re taking out an equity release plan. You may be eligible for an enhanced lifetime mortgage if your health condition is wrong or you have an unhealthy smoking habit, for example.
Best of all:
Equity release plans also have a “no negative equity guarantee”. Meaning, once your property is sold, all agent and solicitor fees have been paid, even when the remaining money is not enough to repay the loan. This is according to the Equity Release Council Standard1.
Are you still wondering if equity release is a good idea?
There are so many benefits to taking out equity release, so it’s an ideal plan for you if you’re older than 55, require some cash, and own a home. These benefits include:
1. You Can Still Live in Your Home
The American Psychological Association (APA2) found that selling your home and moving house can be emotionally and physically exhausting. Therefore, it’s great that you don’t have to go through the ordeal of packing up and moving to a new and unfamiliar place with equity release.
You might want some extra room in your home to have drinks and barbecue Sundays. Or, when the grandkids visit for the holidays, they’ll need a spare room, so then downsizing won’t be the best solution to get some more cash.
And that’s one side of the story.
Moving also costs money: there are solicitors’ fees, removal charges, stamp duty fees, and the emotional price of packing up and leaving your comfortable home where you’ve spent most of your life with your children and where you’ve made unforgettable memories with your friends and family.
By releasing equity, you can keep your independence and keep living in your family home until you pass away or need permanent care.
That being said…
You’re allowed to move to another house if it’s an acceptable house according to your plan provider. Just a side note: if you have heirs, they’ll most likely receive a smaller inheritance after equity release.
2. You Get to Live Luxuriously
Equity release plans allow you the freedom to do whatever you want with your money, unlike other financial plans or products that tell you how to spend your money.
If you have a home reversion lifetime mortgage plan, you’ll have the financial freedom to do all the things you’ve wanted to do for so long. Whether that’s a holiday to foreign countries and exotic locations, purchasing a vintage car, or even doing home renovations, you’ll be able to once you release equity from your home.
You’ll still get the right to live in your house for life or until you need permanent care. You can move to a new home if you want to move to a new home if it’s of equal value and meets your provider’s requirements.
But wait, there are other ways to spend your money.
Equity release allows you to gift an inheritance to your kids now, rather than in the future when you’ve passed on. You can see them bringing up their kids without financial troubles, for example. Or you could donate some money to a charity and see how they grow from it while you’re still alive to enjoy it.
Let me tell you…
Your state benefits entitlement can be affected by equity release withdrawals. Therefore, weigh the pros and cons to determine how it’ll affect your future and financial situation in later life.
3. Protect Your Inheritance & Your Heirs
Equity release has put some safeguards in place to protect your inheritance and family’s financial wellbeing. The no-negative equity guarantee makes sure that your equity release plan follows the Safe Home Income Plan (SHIP) rules.
Let me tell you something…
Without this, you or your heirs will have to pay the difference between the sold property amount and the rest of your loan. The no-negative-equity guarantee protects your heirs, so they don’t inherit any debt that’s more than the property market value when you pass on or move into permanent care.
These are some of the benefits of taking out an equity release product that will ensure it’s one of the best decisions you’ll ever make!
If you’re still uncertain, that’ll help.
Taking out equity can be a stressful decision that shouldn’t be made without seeking advice from an objective financial adviser. However, because the industry has stipulated rules and a regulated and monitored industry, you don’t have to worry about it.
So, here’s the deal:
When you’re considering equity release, you need to think about interest rates and their effect on your loan amount. Unlike a standard mortgage loan, the interest period of an equity release mortgage loan is open-ended.
The loan amount accrues interest, which if you don’t repay it, it’ll “rolls up” over a period. This type of equity release lifetime mortgage is an interest roll-up mortgage. The accrued interest is compounding interest, and it means that you end up paying interest on the interest.
So, what’re you waiting for?
How Much Money Can I Borrow With Equity Release?
Generally, you’re allowed to borrow up to 60% of your property value, depending on which provider you have. The amount you can borrow typically increases as you age. Some providers might offer a more significant amount of money to you if you have medical conditions or illnesses. If you’re older with a medical condition, you could ask a provider to give you a bigger loan than say a 55-year-old in good health.
It’s not advisable to borrow everything you need in one shot. Why? Because the more you borrow, the more you’ll pay. So, borrow the smallest amount you need now. And ask your financial adviser and solicitor to talk you through the contract. That way, you’ll be assured that the plan is the best for your goals and circumstances.
Is Equity Release A Good or Bad Idea?
Yes, it can be a brilliant financial decision – if you’re looking to get tax-free money without monthly repayments nagging on you. However, it might not be the best choice if you want to give your heirs a significant inheritance to your family. Equity release decreases your estate.
Is Equity Release Worth Considering?
The most popular form of equity release is the lifetime mortgage plan. It enables you to access the tax-free equity that’s locked-up in your property. But, equity release isn’t suitable for everyone. If you’re an older homeowner looking to boost your income or finances quickly, other options are worth considering.
Are There any Alternatives to Equity Release?
Essentially, there are lifetime mortgages and home reversion plans. Lifetime mortgages are divided into more options like:
- Income lifetime mortgages,
- Drawdown lifetime mortgages,
- Retirement interest-only lifetime mortgages,
- Bad lifetime mortgages etc.
What's Equity Release?
Equity release is a financial plan that allows homeowners older than 55 to unlock equity from their property by withdrawing a lump-sum or constant stream of income. They can continue living in their home without making monthly repayments until they pass away or move into permanent care.
So, we’ve covered the ins and outs of equity release, its pros and cons and how it works. It’s a great and easy way to get some extra cash flowing into your bank account, with many perks that come along with it!
It’s also much more regulated than it used to be in the past, so there’s nothing to be worried about how safe is equity release! Contact your financial adviser today and go ahead into financial bliss!