At a time when pension schemes are not always meeting expectations, many people are turning to equity release as a means of supplementing their income for retirement. Before rushing in to release capital which is tied up in your property, it’s worth considering the pros and cons of this type of finance.
Equity release: the basics
Equity release schemes enable you to use some of the capital which you have invested in your property over the years. There are two ways of releasing the capital.
A lifetime mortgage allows you to borrow part of the value of your home, and in most circumstances nothing need be paid back until after your death. The other option is home reversion, where the reversion scheme provider purchases a percentage share of your property from you.
You retain the right to live in your property for the remainder of your life, or until you sell it, whichever is the sooner. For example, if you were to sell a 30% share in your property, then the home reversion scheme provider would receive 30% of the sale value of the property.
Equity release means that you can stay in your home but have the benefit of staying in your home whilst being able to use some of its value. If you would prefer not to downsize or just want to avoid the upheaval of moving, it may be a good option for you.
Equity release can provide you with the finances you need for unexpected expenses or to fund some of the luxuries you may have hoped for in your retirement years.
Lifetime mortgages usually carry a hefty price tag. The interest rates on this type of product tend to be high, so they could have a big impact on the amount of capital in your estate to leave to family.
However, if you don’t have family to leave assets to, this may be a good choice for you. If you use a home reversion scheme, you can expect to sell the share in your property for less than its worth at that time.
Releasing some of your capital can enable you to do things which would otherwise have been impossible to finance, such as travelling to those places you’ve always dreamed of visiting.
Other people prefer to spend the money on home improvements or on making their home more suitable for older age, for example by installing a walk in shower or a stairlift, allowing them to continue to live in their own home for as long as possible.
Whether equity release is ideal for you depends very much on your personal circumstances. Before you make a decision on equity release, seek advice you can trust as to whether it’s the most appropriate choice for you, and who the best finance providers would be if you choose to go ahead.