Moving to a fixed income when you retire can be a daunting prospect. You might find that even if you have planned ahead and put plenty of cash into your pension pot over the course of your career, not everything adds up quite as you’d expected.
Enter equity release, a loan that is designed specifically with retired homeowners in mind. If you’re not familiar with what it involves, or you simply want to know more about the perks and pitfalls, read on!
Equity release lets you release cash from your home without having to move
The main draw of using equity release to fund retirement is that it doesn’t force you to sell up and downsize in order to realize the untapped potential of your home’s stored value.
The idea behind these loans is that they are only repaid at a future date when your house is sold, meaning that there will be no monthly repayments to keep up with, unlike a typical mortgage.
As such, you can stay exactly where you are, and leverage equity release to receive a lump sum payment today, safe in the knowledge that the value of your home will cover it further down the line.
You can use the money as you wish
The equity you release from your property doesn’t have to be spent on anything specific, so you are free to do whatever you like with it.
Lots of people make use of the money to pay for the type of lifestyle that they’d like to live during retirement. This might mean booking lavish vacations, or it could mean carrying out home improvements.
Others make use of the money as a gift they give to family members, essentially acting as a preemptive inheritance pot which is handy for all sorts of things, such as mortgage deposits for kids and to pay down student loans.
You could even give the money as a charitable donation. The point is that no matter what you have in mind, equity release will be there to make it a reality, and you can enjoy the fruits of your labor right now.
Interest accumulates over time
As you would expect with any loan, equity release payments are subject to interest, and this will compound year-on-year. So by the time that the loan is repaid when your property is sold, the amount owed will be more than the original sum borrowed.
Given that house prices are still rising and there are rules in place to prevent you from owing more than the total value of the property, this should not be too much of a concern.
The only consideration is that the beneficiaries of your estate will be left with a smaller inheritance, especially if your home is your main asset.
Older people can release more equity
You need to be at least 55 to achieve equity release eligibility, but you don’t have to tap into your property’s value as soon as you hit this point in your life.
In fact, you could be incentivized to hold off for a while, because older equity release borrowers tend to be afforded a larger portion of their home’s sale price by lenders.
At a point, this does level off, but knowing that there is the opportunity to take this loan later on and get more cash as a lump sum as a result could sway your decision-making.
As always, be sure to research your options thoroughly and speak with a qualified, accredited financial advisor before committing to an equity release agreement, and you should find an arrangement that’s right for you.
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