If you’re a homeowner aged 55 or over, you could use an equity release scheme to unlock cash from your home to pay off your mortgage or other existing debt. Here’s how it works…
UK homeowners are feeling the pressure of rising living costs. According to the Pensions Commission, some 15 million people aren't saving enough for retirement, so equity release is becoming a more common part of later-life financial planning. Equity release unlocks part of your property’s value as a tax-free cash lump sum while letting you stay in your home. There are two main types of equity release:
A Lifetime Mortgage
This is a long-term loan secured against your home. You don't need to make monthly repayments (although many products allow voluntary repayments or drawdown features). Instead, interest is added to the amount borrowed, and you repay the loan (plus interest) when the property is sold, usually when the last applicant moves into long-term care or passes away.
A home reversion plan
This involves selling part or all of your home to a reversion company for less than market value, allowing you to receive a tax-free lump sum or regular payment, plus the right to live in the property for free. ‘The main consideration with this option is that you will no longer own the property,’ says Steve Dale, MB Associates’ Equity Release Specialist. 'At MB Associates, we don't advise on these products. Everything we do is mortgage-based, meaning you will always own your home.’
Uses for equity release
People use equity release for many reasons, such as paying for long-term care, helping children get on the property ladder or for home improvements. Another common use, however, is to pay off the mortgage or clear other debts. There are several benefits of doing this:
• It’s a viable alternative to downsizing, unlocking the financial wealth accumulated in your property while allowing you to remain in your family home.
• It eliminates your monthly mortgage repayments, which can remove financial pressure.
• Clearing other debts frees you up financially and can significantly ease stress.
• You have the option to make voluntary repayments when you can, rather than being tied to a fixed repayment schedule, giving you more flexibility.
What you should consider about equity release
When considering whether equity release is right for you, weigh everything carefully. While it can give you more financial freedom later in life, it will affect how much you can pass on to beneficiaries. Also, as interest adds up, your debt will increase over time.
If you’re interested in exploring equity release, seek advice to help you decide whether it’s right for you. Whenever you’re ready, we’re here to help. Our equity release specialist, Steve Dale, will be happy to speak with you in person to discuss your options, and you're welcome to have other family members present. If you would like more information, you can also download our free guide to equity release.