Could using some of the value of your home to access a tax-free lump sum help to pay for things like long-term care costs, to help a loved one with a deposit for a new home or just help with the cost of living, while staying in your own home.
Many people build significant value in their home over a lifetime of mortgage payments and increasing property prices. If you’re in this position, you may have heard about Equity Release and wondered what it is and if it’s for you.
Equity Release offers a way for homeowners to access the value in a home that’s built up over the years. Equity is the amount you’d have if you sold your home, minus any remaining mortgage costs.
It can provide a way to convert some of the value of the home into a tax-free lump sum while allowing you to remain in the home, enjoying the comfort of familiar surroundings.
There are different types of equity release, but the general principle is that homeowners receive a cash lump sum or regular income in exchange for a share of the home’s value. Once the home is no longer needed – which may be when the homeowner passes away or goes into care – the home is sold. At that point, the Equity Release provider receives their share of the proceeds from the sale.
It’s important to know that choosing Equity Release is a big decision and one that shouldn’t be taken lightly. While Equity Release can offer a way for some people to afford to stay in their homes or fulfil other financial commitments, it may not be the best fit for everyone and you should speak to a financial adviser before making a decision that may be irreversible.
What are the benefits of Equity Release?
The main benefit is that it provides money to use now and lets you stay in your home.
As UK property prices have continued to rise over the years, a large proportion of homeowners’ wealth is in their property and therefore inaccessible – as they need to use it as a place to live. If your home has increased in value, Equity Release could help you access some of that value to supplement your retirement income, cover things like long-term care bills or perhaps even help a loved one with a deposit for their first home.
What are the risks?
The main disadvantage is that overall, with Equity Release, you’ll get less money than if you put your home on the market and sold it.
It could also affect the size of inheritance you leave your loved ones when you pass away.
Things to consider
Seek advice from an expert
Speak to a financial adviser that specializes in Equity Release, they will help you understand the benefits and the risks to help find the best option to match your individual circumstances.
Could you raise the money elsewhere
Perhaps you’ve reached the stage in life where downsizing could make sense. This way you could raise the money you need and save more of your property’s value for you or your loved ones.
One big loan v smaller amounts
With a lifetime mortgage type of Equity Release product, it can be more cost-effective to take out a series of smaller loans rather than one big loan, so you’ll pay less interest over time.
Pay as you go
If you’re able to pay off the interest as you go, it could save you money as the interest doesn’t have time to compound.
Think about your benefits situation
Tell your adviser If you currently receive any benefits in addition to your state pension, they may be affected if you use equity release making Equity Release the wrong option for you.