When is Equity Release Worth it?
There are a number of benefits associated with releasing equity from your home, and for a lot of homeowners up and down the country equity release is worth it.
However, equity release might not be for everyone, and it is important to understand the reasons why.
How does equity release work?
Equity release is a form of loan or mortgage that allows you to release money from your home whilst you can remain living in it.
You only sell up and pay off the loan once you pass away or move into a care home, when your property will be sold and the loan repaid in full.
If the proceeds from the sale of the property does not cover the loan amount, then your lender will step in as part of the no negative equity guarantee [1].
Lifetime mortgages are the most popular type of equity release, whereas home reversion plans are a little less popular, as they involve selling a percentage of your home in order to receive your funds.
With either type of equity release money, you get to remain living in your property for as long as you want to.
With equity release, the older you are then the more you get to release. You can often release up to 70 – 90% of the value of your home, as long as your property is worth £70,000 or more.
You can opt to release this as one large lump sum, or through a number of smaller payments that you are free to spend on whatever you want.
Lots opt to spend their equity release funds on home improvements which will naturally increase the value of your home. Whereas others choose to spend their money on loved ones or to pay off debt [1].
With lifetime mortgages, you are charged interest. Although fixed, your interest will compound year on year, meaning that your overall loan amount will increase. You can opt to pay this off as you go, in order to keep the compound interest at bay.
Please call our 24-Hour Helpline for Equity Release Help: 0330 058 1579
But is equity release worth it?
For most people, equity release allows them to live a more relaxed retirement, where they do not have to worry about incoming or savings.
There are a number of different situations that make equity release a great option. Some of these situations are explained below, based on a fixed interest rate of approximately 7% and a property valued of approximately £280,660.
Scenario 1 – If you need to help your family
Lots of people opt for equity release because they want to help their loved ones, whether that be children or grandchildren get on the housing ladder.
More and more young people are struggling to save up to get the 10% deposit they need to put down on their first house. This is often where the ‘bank of mum and dad’ or grandparents step in.
Many young people are relying on their parents’ inheritance to get on the housing ladder for the first time, delaying the process.
However, if you were to release 60% of the value of your home valued at £280,000 then you would be releasing £168,396.
This is a staggering amount, and more than you would need to help your children or grandchildren put down a 10% or 20% deposit on a house or flat.
Scenario 2 – Funding your own retirement
Equity release is also a fantastic option if you are concerned about how you might be able to fund your own retirement. Everyone lives different lifestyles when they enter retirement, and everyone needs different amounts to live comfortably.
How much money you will need to live comfortably in retirement can differ drastically depending on your circumstances.
However, the average individual needs a minimum of £31,000 a year to live a moderate lifestyle during retirement [2].
Some people release equity from their home and opt for a drawdown plan. This plan will allow you to gain a smaller amount of money each month or every few months, as opposed to releasing a large lump sum for you to spend in one go.
When you opt for a drawdown plan you only pay interest on the amount you draw down, and not on the rest you have yet to draw down from.
Your property will need to be valued at a decent amount for you to opt for this choice, and your age and health will be assessed prior to being approved. The older you are, the more you will be able to withdraw.
Please call our 24-Hour Helpline for Equity Release Help: 0330 058 1579
Scenario 3 – Home improvements and extensions
If you live in a property that could do with some TLC, then equity release might be for you.
Home improvements might not only increase the value of your home, but they will also make your property more comfortable for you to live in as you get older.
You might be able to apply for and build either a single storey or multi storey extensions, or you might simply opt to install a new kitchen or bathroom.
Alternatively, you might choose to make some home improvements that will assist you as you age, such as a stair lift, a ramp or a downstairs wet room.
Making these adjustments around the house will mean that you’re able to remain living in your home for as long as you want to, without having to move into a care home due to accessibility issues within the household.
Remember, the equity release loan will need to be resold via the proceeds from the sale of the home. Therefore, you should be looking to add value to your property where possible.
Using our example, if your property were to grow in value by just 10%, then you would add another £28,660 onto the value of your home, which might go some way in paying off the compound interest on your loan.
Please call our 24-Hour Helpline for Equity Release Help: 0330 058 1579
What are the alternatives to equity release?
If equity release simply is not for you for whatever reason, then there are a number of alternatives available to you.
Not all of these alternatives will work for everyone, but it is important to acknowledge and consider all of your options before committing to any one of them.
This is why it is important to speak to your qualified equity release adviser, as any good advisor, like the ones at Equity Release Warehouse, will make sure you consider all of your different options. Some of these alternative options are explained further below for you.
1. Getting a personal loan
If equity release is not for you, then you might want to consider taking out a personal loan.
Borrowing money from an unsecured loan might allow you to release an interest-free amount of money that you can easily pay back.
Just make sure that you can repay the agreed minimum payments each month and always seek help if you start to fall behind.
2. Downsize your property
Downsizing your property is also another alternative option. By downsizing, you will sell your home and bag the profit you make on your property.
Your new property will likely be worth less, so you will pocket the difference which you are then free to spend on whatever you want to.
Downsizing is not for everyone, as many retirees and pensioners are reluctant to sell up and move from their beloved home later in life.
However, if you were able to part ways with your home, then you might be in for a more comfortable retirement. Just do not forget about the dreaded stamp duty.
3. Remortgaging your property
Remortgaging your property is another option. You could opt for a retirement interest-only mortgage, where you pay off the interest on your loan each month, keeping your compound interest at bay.
This way, when you come to sell your property, you only have to repay the initial loan amount.
4. Opting for the Rent a Room scheme
Finally, many pensioners these days are opting for the ‘Rent a Room Scheme.’ This allows individuals the chance to rent out a room in their house, £7,500 of which will be entirely tax free [3].
This means that you only have to submit a self-assessment and pay tax if you earn any more than this amount each tax year. This could go a long way in paying for your living expenses across the year.
Please call our 24-Hour Helpline for Equity Release Help: 0330 058 1579
Contact Equity Release Warehouse
If you are considering releasing equity from your home, but are questioning whether or not it is worth it, then speak to a member of the team at Equity Release Warehouse.
Our team of specialists will answer all the questions you have and present all viable options to you.
Speak to our team today by requesting a free consultation by calling us on 0330 058 1579.
References
[1] https://www.natwest.com/mortgages/mortgage-guides/mortgage-equity.html
[2] https://www.bbc.co.uk/news/business-68222807
[3] https://www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme
