Retirement is the time in your life when you should be living comfortably, enjoying hobbies you had little time for while working and raising a family. Yet more and more people find themselves cash-starved but asset rich – having cash tied up in their property but nothing much going spare to fund a decent quality of life. This is where equity release scheme can be a lifesaver – releasing much needed cash from your home without any need to pay it back in your lifetime!
In this article we’ll explain what is equity release and everything you need to know about it.
How does equity release work?
There are several different equity release schemes to choose between, but they share some basic principles, such as being available to homeowners who are at least 55 years of age, and providing cash, either in one large sum or in smaller sums.
Why people choose to release equity
Some people want to have access to a cash cushion, something to help fund a comfortable retirement and allow them to pursue hobbies or travel. Others prefer to use some cash released to upgrade their car or household appliances, or to extend or redecorate their home.
There are no rules about what you chose to do with the cash released from your property. What is important is that this provides a financial backup which is funded from something you worked hard to buy and pay for, rather than borrowing from elsewhere or having to do without things you feel are important.
Types of equity release schemes
You remain the owner and have the right to live there until you die or need long-term care elsewhere. There are several different kinds of lifetime mortgages.
1. Lump sum lifetime mortgage – you can choose to accept up to the maximum offered in one payment, and choose between deferring the interest and repayments until after your death, or making repayments straightaway – which will reduce the total owing from your estate in the long term. This is a good option if you want to leave something tangible for your beneficiaries.
2. Drawdown lifetime mortgages – with this type you choose to take a chunk of the total you can borrow as and when you choose to. This also helps reduce the interest owed on repayment, and is useful for those who like a nest egg in case of a ‘rainy’ day’.
3. Voluntary repayment lifetime mortgages – this approach allows up to 15% of the total borrowed to be paid back as and when through the year, every year. A good option for those with unpredictable incomes or a wish to leave more profit in the long term pot.
4. Interest-only lifetime mortgage – you pay back just the interest due, then on the eventual sale of the property the original amount borrowed is paid back.
Income for a lifetime mortgage – rather than a lump sum you get a regular monthly income to help cover the cost of living.
Equity release can be a really useful income option for any qualifying homeowner, so if you are interested contact a professional and qualified advisor for more information on your options.