Many people don’t have a standard retirement plan. Some plan to use their home to fund their retirement in the future — a practice that is becoming more and more common. Some homeowners plan to downsize and use the leftover money as their retirement fund, but there is another option — equity release.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
What is Equity Release?
Equity release is a range of products that enable you to borrow money against your property. Typically, you can access up to 60% of the value of your home. You can use the money however you want and you won’t need to make any repayments while you’re still alive. When you die, the profit from the sale of your property repays the loan. Anything leftover is then passed on to your loved ones.
In terms of products, you have two main options: a lifetime mortgage or a home reversion:
A lifetime mortgage is a loan you take out on your home while you still own the property. Making payments during the term of the loan (before death or admittance to long-term care) is not usually required, but the interest accrues and unpaid interest is added on top to be repaid at the end of the loan.
A home reversion requires you to sell a portion of your whole home in exchange for either a lump sum or periodic payments. The value assigned to your property is usually less than what it would sell for on the open market, but barring any further need to sell more of your home, the part that you own will always stay the same even if property values change.
Funding retirement
While it’s not advisable to use equity release as a total replacement for a pension, it can be incredibly useful to supplement any shortfall. There are no guarantees when it comes to the housing market and you could be ready for retirement during a dip, potentially losing out on a large chunk of money that you’d previously planned to use. Conversely, the opposite could be true and you would be in for a windfall. You just can’t predict the future, so it’s important you plan for any eventuality.
It’s not unusual to need a financial boost during retirement, but releasing equity from your property is a big decision. Dental & Medical Financial Services can help you ensure you have a sound plan for retirement and advise on incorporating alternative ways to fund your retirement. Get in touch to get started.