Everyone has a different retirement story. Some reach their mid-60s financially secure, with a nice home and a good pension. Others enter those years with not enough saved, and this can be for all sorts of reasons, such as divorce or a long period of unemployment hindering their pension savings. Others may face retirement without any close family they feel obligated to leave an inheritance too and may want more money to enjoy a higher standard of living.
For those looking to access some of the wealth locked into their home, Equity Release may provide the answer. This type of financial product enables you to access some of the equity in your property without you having to sell it. It lets you carry on living in the home until you die or need to go into a care home.
The financial products used to release equity from your home are called Lifetime Mortgages. The Lifetime Mortgage lender gives you a sum of money, secured against your property, that you don’t have to repay while you are alive. The agreement is that the loan is settled, along with interest owed, when you die and your home is sold. You typically have to be age 55 or older to apply for a Lifetime Mortgage and have a home worth at least £100,000 to be considered.
Equity Release is not the right choice for everyone: the positives and negatives to consider.
The positives include the flexibility of being able to withdraw either a lump sum of tax-free money or taking a monthly income if you prefer. You can use the money without any restrictions too. This means you can use it to carry out home improvements or use it to help your children with a deposit for their first home. You aren’t trapped either, you can still move house if your circumstances change, so long as the new property meets the requirements of your lender. You can also guarantee that a fixed sum of money will be left to your beneficiaries from your property if that is important to you, by purchasing an Inheritance Protection policy. Life is full of surprises and most Equity Release schemes offer the flexibility to repay some or all of your original loan and move back to full ownership of your property if you choose. However, you will usually incur a penalty fee.
The negatives need to be carefully considered too. There might be cheaper and more flexible ways to borrow money, for instance taking out a straightforward loan. If you are considering Equity Release to subsidise your pension then it’s important to check that any means-tested benefits for which you are currently eligible won’t be affected, such as pension or housing benefit. You also need to be aware that interest can build up quickly on an Equity Release loan, and although this will be settled on death, it may impact significantly any inheritance you leave behind.
You should consider Equity Release alongside other ways you can release some of the value of your property. This includes downsizing: a less expensive home can be cheaper to run, and a house sale could generate a sufficient lump sum of money to support your retirement.
What are the Lifetime Mortgage options?
If you think Equity Release may be the right choice, then there 3 main types of Lifetime Mortgages from which your financial adviser can help you choose.
Flexible Lifetime Mortgage: This type of plan provides you with a tax-free lump sum of money, or a series of payments, secured against the equity in your home. There is nothing to repay on these loans until you die or move into Long Term Care.
Optional Payment Lifetime Mortgage: If you are thinking you may repay some or all of the interest accumulating on your Lifetime Mortgage Loan, then an Optional Payment plan allows you this flexibility.
Income Lifetime Mortgage: Rather than taking a lump payment, an Income Lifetime Mortgage provides a regular income which can be paid for a fixed term. This can be a preferred choice for those who need to supplement or provide a pension income.
At Fuladvice, our financial advisers hold the specialist qualifications needed to provide you with independent advice on equity release. Call us on 0808 501 5093 to book a no-obligation financial review. You can also reach us by emailing info@fuladvice.co.uk or submitting your information below: