Here's what you need to know about equity release
Retired and looking forward to enjoying more of life again? Equity release might be the answer – here’s what you need to know
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From travelling the world to spending more time with the grandkids, there is plenty to look forward to once you retire, but how do you fund your golden years?
Retiring may give you more freedom and time to spend on the things, and with the people you love the most, but it still costs money.
Without a regular salary it can be hard to adapt to life in retirement, especially as there’s no guarantee that your state or private pension will maintain the standard of living you’re used to.
So that’s why many people turn to equity release to help provide the retirement they’ve been dreaming of.
From travelling the world to spending more time with the grandkids, there is plenty to look forward to once you retire
What is equity release?
An equity release product is similar to a mortgage, but is only for people aged 55 or over.
It lets older people release tax-free cash from the value of their property.
There are two types of equity release products and the most popular is a lifetime mortgage, which is a loan secured against your home.
Unlike a traditional mortgage, there are no monthly interest or repayments, depending on the plan you opt for.
Instead, everything is rolled up and only has to be repaid once the borrower moves permanently into a care home or passes away.
Alternatively, some older property owners use a home reversion plan where part, or all, of the home is sold to a provider in return for tax-free cash.
How can equity release boost your retirement?
30 per cent of those using equity release have spent the money on a dream holiday
You can spend the tax free cash on almost anything you wish.
However, if you have any outstanding mortgage or other debt secured against your home, these would need to be paid off first and you can use the money you release to do this. Using equity release to repay an existing mortgage or other debt could cost you more in the long term.
Some homeowners use it to clear debts, while others put it towards giving an inheritance to their loved ones early, so they can enjoy seeing them use it.
There is, of course, the option to just splash the cash on yourself.
Research by the Saga Equity Release Advice Service, which is provided by HUB Financial Solutions Limited, found 59 per cent of customers have used equity release for home improvements like a new bathroom, kitchen, extension or conservatory.
Another 49 per cent have used equity release to pay off debts, 30 per cent have spent the money on a dream holiday, while some use it to create an emergency fund for repairs and bills or to buy a new car.
The options are endless and you can use the money for almost anything you choose.
The benefits of equity release
Simply put, equity release lets you access tax-free cash in your later years.
This is particularly handy if you don’t have other savings and if you aren’t getting enough from your pension.
It also means you get to stay in your home and can even use the money to make adaptions to it as you get older.
It will reduce the value of all your assets, known as your estate, which could therefore reduce any inheritance tax bills.
Equity release means you get to stay in your home and can even use the money to make adaptions to it as you get older
The risks of equity release
There is lots to think about beyond the tax-free cash.
You could lose access to benefits such as universal credit or pension credit if you suddenly receive a lump sum through equity release.
It is also important to talk to your family as it may mean sacrificing an inheritance you were hoping to leave to your loved ones.
Some providers, however, will let you reserve a portion of the proceeds from the sale of the property as an inheritance once you pass away. But be sure it’s the best course of action for you, before you make a decision.
How equity release works
If you purchased your home a long time ago there’s a chance it has risen in value.
That extra money is your equity and the higher the value of your property, the more equity or cash could be available to release.
The amount you can release depends on your age and the lender, but you can often borrow up to 60 per cent of the value of your home.
The minimum property value is £70,000 so this isn’t a product reserved for wealthy mansion owners and could work for most older homeowners.
Depending on the plan, there are no monthly repayments with a lifetime mortgage and instead the loan and interest owed only has to be paid once you move permanently into care or by your estate.
It is slightly different with a home reversion plan as you essentially sell a portion or all of your property to the provider.
If the whole property was sold then the home reversion provider would take it over once you move into care or die.
Equity release could be the key to making your retirement all the more enjoyable.
If only a portion was sold to a home reversion provider, then the property would be sold and it would get the proceeds equivalent to its share, with the rest going to your estate.
Equity release products have become more flexible in recent years and some will let borrowers make partial repayments or access the money in different stages rather than as a lump sum.
For example, the Saga Equity Release Plan is a lifetime mortgage which gives borrowers the choice to pay back all or part of their monthly interest.
Doing this will reduce how much is owed at the end of the loan, potentially leaving more in the value of your estate for your loved ones.
Borrowers can also get the option to take a payment holiday of three months during any 12-month period.
Saga also offers a Regular Drawdown Lifetime Mortgage. This combines an initial tax-free lump sum payment with ongoing tax-free monthly payouts.
This reduces the cost of the mortgage and the amount owed overall as interest is only charged on the amount that has been accessed.
It’s only available, however, to customers aged 60 to 80 with a UK property worth at least £150,000.
These two Saga exclusive equity release products are provided by Just (part of the same group as HUB Financial Solutions Limited).
All plans available through Saga also have a no negative equity guarantee.
This means you will never owe more than what your home is worth and the debt cannot be passed on to your family when you die, or move to permanent care providing you have met the terms and conditions.
How to apply
An equity release adviser can assess your finances and your retirement needs to see if the product is suitable for you and may even recommend alternative options. (Stock image)
Providers aren’t allowed to sell you an equity release product unless you have taken advice.
An equity release adviser can assess your finances and your retirement needs to see if the product is suitable for you and may even recommend alternative options.
They should explain any arrangement and advice fees involved and how much the loan will cost.
The Saga Equity Release Advice Service, provided by HUB Financial Solutions Limited, will also do a free state benefit check to ensure customers are receiving everything they are entitled to.
The service recommends a range of equity release products as well as Saga’s own exclusive products and the usual £750 payable on completion of a recommended product is waived if you are a Saga member.
Plus, if you proceed with one of the Saga equity release plans, you won’t have to pay any set-up costs or valuations fees and will get £425 towards the legal costs.
So click HERE to find out how much you could release or call 0800 056 6070 to learn more about equity release. It could be the key to making your retirement all the more enjoyable.
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