Are you heading towards retirement, but you’re unsure how you’re going to fund the cost of everyday expenses when you no longer have an income? While there are state and means-tested benefits in the UK, the money might not be enough to give you the lifestyle you’ve dreamed of.
Luckily, there are ways to use the cash tied into your property to fund your retirement. To fill a gap in the market, the equity release industry was born and has since grown into a multi-billion pound and fully regulated industry.
There are some incredible benefits of using the money tied into your property to fund your retirement. However, Jason Stubbs, an Equity Release Expert from EveryInvestor is warning us that there are also some drawbacks that you need to be aware of, as well as companies which you should rather avoid.
Understanding Equity Release
Equity release is a series of financial products intended for older homeowners to use the money in their property to supplement their retirement income. The money unlocked is tax-free and doesn’t require repayment in their lifetime. Instead, the loan and interest compounded are repaid when the last homeowner dies or moves to residential care and the home is sold.
What Are Your Equity Release Plan Options?
Your options with an equity release loan are a lifetime mortgage or a home reversion scheme. Furthermore, you can select to release your cash in a lump sum, with a drawdown facility, a combination of both, or as a monthly income serving as a salary supplement.
A lifetime mortgage is the most common and traditional form of equity release. Lifetime mortgage options include drawdown plans, enhanced plans, income plans, and plans that allow you to pay back the monthly interest and some of the loan.
Less popular, a home reversion scheme gives you the option of selling all or a percentage of your property below market value. The lender will then take their percentage of the income when the home is sold, benefiting from increased property prices. The homeowner will need to maintain the property’s condition, as per the equity release agreement.
What Are the Benefits of Equity Release?
Using the value of your property has some fantastic benefits for your retirement. These include:
- The cash you release is tax-free, unlike with a regular salary.
- You can use the money in any way you wish.
- You can live in your house for the rest of your life.
- The Equity Release Council regulates the industry, including enforcing the ‘no negative equity guarantee’, ensuring that any debt more than the sale value of your home will be written off.
- Equity release has fixed interest rates that you have the option of repaying, but there’s no obligation to do so.
What Are the Drawbacks of Using Your Property to Fund Retirement?
Like with all financial products, equity release does have some disadvantages.
- Releasing the cash from your home will drastically reduce your inheritance.
- You’ll decrease the value of your estate.
- You won’t benefit from the full value of your home, as you would if you were to sell the property.
- You’ll incur early repayment charges if you end your plan before it expires.
- Equity release can make it difficult to move to a new home.
You’ll Be Guided through the Equity Release Process
Luckily, when it comes to unlocking the cash tied into your home, you will be supported through the process. It’s mandatory to seek counsel from a financial adviser to guide you through the equity release process. While some lenders offer free advice, it’s always best to opt for a whole market financial adviser who has access to guide you through the entire industry.
It’s always difficult to know what are the best financial choices to make, especially when it comes to retirement income. However, as long as you’re aware of the drawbacks and benefits of using your property to fund your retirement, it might just be the answer you’ve been looking for. Get in touch with a financial adviser today who will also have the skills to guide you through your alternative options.