Equity release is growing in popularity and particularly as a way to pay for care in later life. Any product that enables the release of equity is regulated by the financial conduct authority, giving you security and peace of mind.
Many homeowners are using their houses as a ‘cash machine’ to help fund their retirement. Statistics show that schemes which allow older property-owners to unlock the value tied up in their properties are enjoying record take-up.
A record amount of £1.02 billion was unlocked by homeowners. Additionally, homeowners aged 55 and over withdraw about £11 million of property wealth every day to support their finances.
But what is equity release, and is it a good option to fund your retirement needs? Here we explain what releasing equity is, the types of plans available and differences between them, and the benefits and drawbacks for your consideration.
There could be several reasons to consider alternatives to equity release. One of the main ones is the high-interest rates associated with equity release options, potentially causing you to eventually owe more money than your property is worth.
Another reason is that the equity release options, such as a lifetime mortgage, can impact your eligibility for means-tested benefits. This is because of the likelihood that the money you release could be seen as capital or savings.
Releasing equity can further impact your potential inheritance tax liability and capital gains tax position, depending on whether you later sell your property. Therefore, before choosing equity release, it’s imperative to take these “tax implications” into perspective.
The value of your estate and the amount of inheritance you can leave behind may both decrease as a result of equity release. Therefore, considering alternatives to equity release can be a wise decision for some homeowners.
You can read more about these options below.
Equity release allows you to access wealth held up in your household.
You can do this while continuing to live in the house until you die or move out permanently. This scheme is available to people aged 55 and older, and you don’t need to have fully paid off your mortgage to do this.
If you’re looking for ways to boost your income later in life, equity release products are becoming an increasingly popular option. But before you go ahead with this option, it is worth considering the pros and cons described above and exploring the differences between the alternatives.
Here are 10 other forms of assistance you may want to consider:
When the kids have grown up and moved out, you might have more space in your home than you need. Selling your home and moving to a smaller, less expensive place of residence can generate a lump sum of money.
While downsizing is cheaper and more flexible than some other methods, it comes with some disadvantages. If home prices are falling at the time you are selling your home, you might end up with less money than you hoped. You will also need to pay an estate agent.
Additionally, it could take some time to find a buyer and a good place to spend your golden years. The fact is, downsizing can be costly and have substantial emotional impacts.
These include moving costs, estate agent’s fees, legal fees, stamp duty, buying new furniture, redecorating to suit your tastes, leaving your long-standing family home and losing support from family and friends in the community.
If you only need a relatively small amount but quickly, then a credit card may be a great option. Low interest rates and a battle for clients between credit card providers mean great deals are available on the market.
For example, the Lloyd Bank Platinum Low Rate credit card offers an interest rate as low as 6.45% depending on your circumstances. Additionally, it has an annual fee of £0, and when you make a balance transfer within the first 90 days of opening an account, you get a no-fee deal.
The best option when opting for credit cards is to go for those with a low interest rate; however, this option is more suitable for borrowing smaller amounts of money.
Retirement interest only mortgages (RIO mortgages) are a newer type of equity release product that could be a suitable alternative to equity release. With a retirement interest-only (RIO) mortgage, you only pay the interest each month, with the capital being repaid when you sell your home. RIO mortgages allow homeowners to borrow into retirement.
Therefore much like a standard interest only mortgage, you only make monthly interest payments during the mortgage term.
When you sell your house, enter long-term care, or pass away, the loan is paid back in full.
RIO mortgages can offer lower monthly payments compared to a regular mortgage, as you’re only paying the interest. Therefore, you are able to save money every month and potentially improve your retirement income.
However, like all financial products, RIO mortgages come with risks. For example, if your property value falls, you can end up paying more than the value of your home.
Therefore, it’s always beneficial to seek professional advice from an independent financial advisor or mortgage broker before deciding on a RIO mortgage.
Another option is to change mortgage providers before completion of your current mortgage term. Remortgaging with a lower interest rate and better terms can reduce your monthly payments, freeing up cash for other expenses such as paying off debts or home improvements.
It’s also a great way to release some cash built up in your estate.
Before you start shopping for mortgage rates and lenders, decide on what product you want – for example, a fixed rate, variable rate or tracker. This will enable you to find the best offer.
Then speak to a lender directly, and use a comparison website or the best-buy tables in the financial pages of newspapers to find the best deals. If you don’t want to do the legwork, a mortgage broker can be valuable.
This is also a good alternative to selling your house fast2.
All equity release and mortgage advice is provided by Boon Brokers Limited, which is authorised and regulated by the Financial Conduct Authority (FCA). The Financial Services Register number is 973757.
If you take out a product with Boon Brokers, we will receive a fee for introducing you to them. Boon Brokers provides advice for free and without obligation. By contacting Boon Brokers through us, the cost of any equity release product would be the same as if you had contacted them directly.
The fee we receive is used to help keep this site operational and to produce new content.
Think carefully before securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage.
Even if you’re retired, you can take out a personal loan against your residence. Borrowing via a personal loan will help you avoid the high fees associated with equity release plans.
Additionally, loans can be arranged for short terms, as and when you need money, unlike equity release, which is a lifetime commitment.
This solution has some downsides, though. Interest rates on personal loans are more expensive than mortgages. If you’re unable to keep up with the monthly payments, you risk having your property repossessed. Therefore, before opting for this option, make sure that you have enough income to make repayments. Speak to an expert adviser, who can give you tips and assess your personal finance.
Most retirees have some form of savings or investments tucked away for a rainy day. If you have any built-up savings or investments, consider using those to achieve your financial goals instead of using equity release.
However, before cashing in on any investments, be sure to consider any tax implications or better yet seek professional advice from experts.
If your home has more space than you need, consider renting out a room.
Under the ‘Rent a Room’ scheme, you could receive up to £7,500 per year for letting out furnished accommodation to a lodger.
If you’re healthy and able in your later life, getting a part time job or renting out a room in your home through the government’s Rent a Room Scheme could be a good alternative to equity release.
These options will also provide extra income to supplement retirement funds. Both options may help you in accessing additional funds without having to release your home’s equity.
Along with earning extra money, part-time work can also help your social life by introducing you to new people and keeping you active.
On the other hand, the Rent a Room Scheme allows you to earn up to a certain amount a year tax free by renting out furnished accommodation in your home.
However, both options require time and effort, renting out a room in your home also meaning sharing your living space with others. Therefore, not everyone will think these choices are ideal for them.
You could ask for help from your relatives.
While this may not be an easy subject to bring up, they may prefer to help you than allow you to sign up to equity release deals which could leave them with little or nothing to inherit.
Furthermore, if the funds are necessary for your health, they might be more than happy to help.
For homeowners who are eligible, government benefits can provide a significant boost to their income. They can use this to meet their financial needs without having to give up any of the equity in their house.
However, not everybody qualifies for these advantages. This is because eligibility depends on your income, savings, and other personal circumstances.
It’s also important to note that some benefits are means-tested. Consequently, releasing equity from your house may have an impact on your ability to receive these benefits.
There are also ‘local authority grants’ available for homeowners who need to make home improvements for health or safety reasons. These incentives, provided by local authorities, could make it possible to pay for these changes without having to give up any home equity.
Another alternative to equity release is to claim all benefits and local authority grants that you are entitled to from the government. These include borrowing for home improvements or for conversions to deal with your disability. To find out what benefits you can claim, visit the Gov.uk Benefits Calculators.
If you’re currently not living within your means, look at your income and outgoings to see if any things are costing you unnecessary money.
The equity release alternative you pick will depend on your current financial situation, the amount of money you want to raise and how quickly you want to raise it. Just make sure to talk to an expert financial adviser before making a decision.
Local governments provide a range of grants and help homeowners who require essential house repairs or adaptations. One example of this are disabled facilities grants, for homeowners who need to adapt their homes due to disability.
These grants could fund necessary housing work, whilst also avoiding equity release.
Applying for a grant from your local authority can be an excellent way to finance necessary home improvements without resorting to equity release. However, one must meet certain requirements to be eligible for these grants.
Before applying for a grant, it’s recommended to seek professional advice from a financial advisor.
They can help you with the application procedure and explain any possible costs, offering tips and assessing your personal finance. For instance, how the grant can affect your eligibility for other things, such as means-tested benefits.
While it’s clear that there are many alternatives to equity release, it’s essential to consider your personal and financial situation before making a decision.
Downsizing, obtaining a RIO mortgage, or requesting a grant from your local government are all choices, and each come with their unique advantages and disadvantages. Therefore, it’s always wise to seek professional advice to make the decision that best suits your needs.
While there are many products available on the equity release market, there are two main ones, both regulated by the financial conduct authority (FCA):
With lifetime mortgages, you borrow money against your home’s value. You receive a one-time amount, and you still remain the sole homeowner. For many, this option gives a more pleasant experience than others.
This equity release scheme has evolved over the years to provide flexibility in the way borrowers access their money and make payments. Consequently, different types of lifetime mortgages have emerged. To help you make your choice, we have compiled some information below that gives detail on the differences between them.
You can use an equity release calculator to see how much money you could borrow, based on your age and personal details.
Here is a short video that explains more about how lifetime mortgages work.
Available to UK homeowners aged 65 and over, a home reversion plan involves selling part or all of your property in exchange for a regular payment or a lump sum. Reversion companies pay below the market value because you get to stay in the house rent-free until you move out permanently or die.
This is a common question asked, and the answer depends on the type of plan you decide to take out. In the case of a lifetime mortgage, then you remain the homeowner. However, if you choose a home reversion plan, your provider owns all or part of your house. You do still have a lifetime lease, though.
Equity release schemes can seem appealing, but are they the best way to raise money?
Here is a short video explaining the pros and cons of equity release. Plenty of guides are out there, discussing the different choices and factors to consider. With such a range of equity release products out there, though, we recommend having your questions answered by a specialist before making any final decisions.
Below, we weigh up the advantages and disadvantages of equity release.
Once and done – after you sign up to an equity release plan, you won’t be able to take other loans using your property.
A retirement interest-only mortgage, often shortened to RIO, is a type of mortgage designed for older borrowers. Whilst you make repayments towards both the interest and the capital with a traditional mortgage, a retirement interest-only mortgage requires you to solely make monthly interest repayments. When the property is resold the capital has to be repaid, usually when you move into long-term care or pass away.
RIOs can be a viable equity release alternative for those who are comfortable making monthly repayments during their retirement. Additionally, it may be further appealing to those who want to avoid the increased costs associated with equity release plans. As always, speaking with an equity release advisor can offer necessary insight, helping you to make an informed decision.
Personal loans can be used as a potential alternative to equity release. Personal loans are a type of unsecured loan, meaning that they are not tied to your property. They can be used for a range of purposes, such as home improvements, paying off debts, or supplementing your pension savings.
Alternatively, compared to secured loans or mortgages, personal loans will typically come with higher interest rates. Also, your credit score and financial situation can significantly impact your eligibility and the interest rate which you’re offered. Therefore, before opting for a personal loan as an equity release alternative, it’s crucial to factor in these potential costs and consult a financial adviser
An equity release lifetime mortgage allows you to retain ownership, whilst also allowing you to borrow money against the value of your home. Depending on your needs, releasing equity from your home can provide a lump sum of money, a regular income, or a combination of both.
Furthermore, you don’t have to make monthly repayments with a life-time mortgage. Rather, the loan and accumulated interest are repaid when the property is sold. Nevertheless, remember the interest can compound quickly which increases the amount you owe over time. It’s always recommended to seek professional advice from an equity release adviser before opting for a lifetime mortgage, allowing you to discuss costs involved.
An equity release calculator is a handy tool which estimates how much equity is able to be released from your home. The amount you can release depends on multiple factors, such as your age, the value of your property, and the specific terms of the equity release plan.
An equity release calculator can only provide an estimate, meaning that you should consult an equity release advisor to gain a more accurate figure and a comprehensive understanding of equity release. They offer guidance throughout the process, helping you to understand the potential implications of releasing equity from your home.
In this article, we answer 22 important questions that you may have about equity release, including what it is, how it works and what the best interest rate deals are.
Equity Release is not for everyone. In this article we look at the alternative options that you can consider if you need access to money in later life to pay for care, top up your pension etc.
A lifetime mortgage is the most popular type of equity release scheme, as it’s the most flexible and versatile option. The amount you receive depends on your property value.
In recent years equity release has become a very popular option. This article looks at the pros and pitfalls of equity release and what you need to consider before taking it out.
How much you can borrow from equity release varies depending on your age and house value. In this article we look at how much you could borrow from your home.
A drawdown mortgage is a type of equity release scheme, offering greater flexibility and freedom compared with traditional plans. In this article we explain all that you need to know.
An equity release calculator will give you a good indication of what you can borrow from your home. This article explains how the calculator works and also shows you what you can receive.
One of the big concerns that people have about equity release is what happens to their home and borrowings when they die. In this article we explain everything you need to know.
A home reversion plan is primarily suited to individuals over 65 looking for a solution to their finances. This article explains all you need to know.
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