Recent research trends indicate that the number of retired personnel above the age bracket of 65 are returning to work; the sole and primary reason being financial issues. The reason for returning to work is maintaining the financial stability of the household after the retirement age. Fortunately, to solve such issues now there are various schemes available which offer a constructive solution to boost financial stability- the most popular scheme being equity releases. But what is an equity release, how can it be helpful and how does it work? To help you understand we will explain it to you in detail.
Equity release – We are sure you must have come across this terminology before but many are not aware of how this works. Equity schemes allow you to access your property’s value for more cash during your age of retirement stage which can be helpful to you as well as your family. But at the same time equity release is expensive, and involves a lifetime commitment. If at any point of your life you’re facing a pension shortfall or there is some urgency or an unexpected expense which needs to be met in that case equity release can seem to be quite helpful. It will allow you to tap into the wealth you’ve accumulated in your property over the years without the hassle of having to move.
How much will the equity release cost?
Equity release doesn’t come cheap as the scheme involves a lifetime commitment. And at the same time, a lifetime mortgage can cost more than three times what you borrow. Typically, equity release interest rates for lifetime mortgages which is the most common form of equity release have dropped in recent years. Equity releases are basically of two main types: lifetime mortgages, which allow you to borrow money against your house; and home reversion, whereby you sell a share in your house.
The interest in this process is calculated compounded over the period of the loan, meaning your debt could double in 10-11 years at current rates.
Home reversion schemes
Home reversion scheme, allows you to sell a share of your property to the provider for less than the market value. You have the right to stay in your home for the rest of your life as per your wishes. When such kind of situation arises like either you move to long term care or you are no more than in that case the provider gets the same share of whatever your home sells for as repayment.
For example, if you sold 50% of your property to the provider, it would get 50% of the sale price.
There is one difference in lifetime mortgages and home reversions. Lifetime mortgages can be taken out from the age of 55, but home reversions are available only to people aged 65 or older.
Apart from these two options, there are some other alternatives available too. If you own your home you might find that taking out a mortgage on the property is a more cost-effective strategy. Alternatively, if you have a mortgage in place, you might be able to release extra cash by remortgaging the released equity. Ideally, we would advise you should do the financial planning tactfully. Use pension calculators to build a financial picture for your retirement as it will give you clarity on your financial planning.
With the help of our equity release calculator, we can help you get clarity on how much cash you could release as per your requirements. This can also help you identify how much tax-free cash could be released instantly. To learn more visit our equity release calculator