Considering Equity Release for Retirement



Posted on: 14th November 2018

When it comes to planning for your retirement, equity release is a popular choice among many homeowners. However, it is important to understand how equity release works before you truly consider it as a way to build yourself a financial future after work. Equity release allows you to use some of the money tied up in your home to provide you with a tax-free lump sum. This is something you can spend as you wish. Used wisely, taking equity release for retirement could be a huge benefit for both yourself and your family. Here, we explain the pros and cons.

Using Equity Release for Retirement

Equity release is only available to homeowners aged 55 or above. If you want to pass down some finances to your children earlier than when you die, or you need to meet some unexpected expenses, then equity release could be a good option. You may even want to release some equity for the purpose of treating yourself. Many opt for equity release when they want to travel the world after retirement! The aim is for you to be able to tap into the money that you have accumulated in your property. However, you won’t need to move.

There are essentially two types of equity release available. The first would be a Lifetime Mortgage. This enables you to borrow money secured against your home. The second would be a Home Reversion Plan. This provides you with money in exchange for you selling a share of your home.

Both product types come with a range of features and benefits. However, equity release is not a decision that you should take so lightly. It is important for you to take the products offerings into careful consideration. You should also make sure that the option you choose meets your personal needs and circumstances. Once you have taken out the product, it cannot be easily reversed.

Though there are many benefits to equity release, it also comes with certain drawbacks. This is due to how equity release plans meet the product standards set out by the Equity Release Council. Here, we explain the pros and cons:

Benefits of Equity Release

With a lifetime mortgage, you are able to stay in your home for the rest of your life. You needn’t make regular payments unless you choose to do so. This is because the amount that you owe to the lender is often repaid from the proceeds of the sale of your home when you die or if you move into permanent long-term care.

There is also a ‘no negative equity guarantee’ with a lifetime mortgage. This means that if you are no longer in your property, you or your beneficiaries will not have to repay more than the sale proceeds. This applies even if they are less than the amount that is owed.

With a home reversion plan, though you are selling either all or part of your property, you can live there, completely free from rent. This will continue until either the day you die or the day you move permanently into long-term care.

With both of these equity release options, you can release a lump sum. This is completely tax-free and can be used to supplement income or to finance larger expenditures.

Drawbacks of Equity Release

You may find that borrowing money against your home with a lifetime mortgage could work out more expensive in the long term than if you were to downsize. When it comes to selling part or all of your home through a home reversion plan, you will receive considerably less than the current market value.

There will be some financial drawbacks as well. With equity release, you may lose certain entitlements to state grants and benefits. It will also inevitably reduce the amount you have in your estate. Finally, it is important to be aware that this is not designed for short-term financial need. This is a lifetime decision and should be made with care.

Talk to Haven IFA

The financial decisions you make for your retirement should be done so with care and consideration. What will certainly help is having an independent financial adviser there to ensure you make the best decision for your lifestyle. Haven IFA are here to guide you in doing what is right for your financial future, ensuring you live a comfortable and enjoyable retirement. To learn more about our services, get in touch to speak to one of our advisers.