What Is Equity Release, and How Can It Benefit You? 

For those nearing retirement or already retired, one of the biggest concerns is how to make your money last. You may have saved and invested throughout your working years, but it’s likely that you won’t be able to cover all of your costs from Social Security and savings alone. That’s where equity release can come in handy. Equity release allows you to access a portion of the value of your home while still living there. Read on to learn more about equity release and how it could benefit you. 

What Is Equity Release? 

Equity release is a way for homeowners aged 55+ to access the value of their property without having to sell up and move. There are two main types of equity release: 

  • Home reversion: You sell part or all of your home to a provider in return for a lump sum or regular payments. The provider will usually let you stay in your home for as long as you like. When the property is sold, either after your death or when you move into long-term care, the provider keeps the proceeds. 
  • Lifetime mortgage: You take out a loan secured against your property. The loan plus interest is usually paid back when the property is sold, either after your death or when you move into long-term care. 

With both types of equity release, it’s important to remember that you’re still responsible for maintaining and insuring your property. 

How Can Equity Release Benefit You? 

There are a number of ways in which equity release can benefit you in retirement. 

Added Income 

Perhaps the most obvious is that it can provide you with a much-needed source of income. If you’re finding it difficult to make ends meet on your pension and savings alone, releasing equity from your home could give you the boost you need. 

Lump Sum for One-Off Expenses 

Another way in which equity release can benefit you is by providing a lump sum of cash that can be used for one-off expenses. This could be anything from home improvements to clearing debts. 

Flexible Payment Options 

With some equity release schemes, you can choose how you receive your payments. For example, with a lifetime mortgage, you could take the money as a lump sum or opt for smaller, regular payments. This flexibility can be useful if you’re not sure how much money you’ll need in retirement or if your income needs may change over time. 

No Negative Equity Guarantee 

With a lifetime mortgage, you’re usually only required to pay back the loan plus interest when the property is sold. This means that you’re protected against negative equity – even if your property decreases in value, you’ll never owe more than the value of your home. 

What Are the Risks? 

As with any financial product, there are risks associated with equity release. It’s important that you understand these before taking out a scheme. 

Reduced Inheritance 

One of the biggest risks is that releasing equity from your home could reduce the amount of money left for your beneficiaries. With a home reversion plan, they will only receive whatever percentage of the property you don’t sell to the provider. With a lifetime mortgage, they will need to pay off the loan plus interest before receiving anything. 

Loss of Means-Tested Benefits 

Another risk to be aware of is that releasing equity from your home could affect your entitlement to means-tested benefits, such as Housing Benefits or Council Tax Reductions. This is because the money you release will be counted as part of your ‘assessable’ income. 

Moving or Selling Your Home 

If you take out a lifetime mortgage, there’s usually no obligation to sell your property when the loan plus interest is due to be repaid. However, with a home reversion plan, you may be required to sell your property in order to repay the provider. This could prove difficult if you need to move into long-term care. 

Before taking out any equity release scheme, it’s important to speak to an independent financial advisor to make sure it’s the right decision for you. They will be able to discuss your options and help you understand the risks involved. 

How to Qualify for Equity Release 

Qualifying for equity release is usually a straightforward process. Most providers will only consider your application if you’re over the age of 55 and own your own home. You’ll also need to have a sufficient level of equity in your property – typically, around 30%. 

If you meet these criteria, the next step is to get an equity release quote. This will give you an estimate of how much money you could release based on the value of your property and your age. 

Remember, releasing equity from your home is a big decision. Make sure you understand all of the risks involved before proceeding.