What is equity release and how is it useful for people over the age of 55? Here are some tips for those who are considering an equity release.
Equity release loans provide a way for homeowners to borrow money during retirement. Retirees who own their own homes are able to apply for loans to help them get through difficult times. Although it can be risky to take out a large loan, if the plan is right for you, equity release can be a great way to get extra cash for your retirement.
Equity release could be a good option for those who are looking for a lifetime mortgage
Sometimes, you don’t need to repay an equity release. If you take out a large amount of money at once by choosing a lump-sum lifetime mortgage you don’t need to make repayments until your property is eventually sold. This means that because of the interest, the amount you owe increases over time, making this a more expensive option. The inheritance that you leave behind will decrease as a result. Luckily, there are many different plans and options available. Some offer flexible interest rates, others repayments of only the interest.
You can usually borrow about 18% to 50% of the value of your property and your age often determines how much you can release. If you are in your 70s you may be able to release a much higher amount than someone who is 55. This doesn’t mean that the amount of money that you could gain for your retirement isn’t worth it.
Home reversion plan
Lump-sum ‘mortgage’ loans are the most popular type of equity release, but there are other options. A home reversion plan, for example, allows you to sell a share of your property. This means that a provider could buy a certain percentage of your home and benefits if your property value rises over time.
As Martin Lewis explains in his blog MoneySavingExpert, ‘Here a provider pays you a tax-free lump sum for a portion of your home at below market value. You can then live in the property (rent-free) until you die. When it’s sold, the proceeds are split based on the percentage you own and the lender owns. So, if your property value rises significantly, so does the amount it gets.’
Whichever plan you end up choosing, it’s best not to borrow the full amount in one go – take what you need now and then look later down the line if you need more. Don’t do it off your own back and make sure you get advice beforehand to see whether or not it is the correct decision.