We all aspire to enjoy our retirement, yet if you reach the end of your career and you find that you are strapped for cash, equity release could be for you.
If you are unfamiliar with equity release as a concept and unsure how it works, read on for the lowdown on this intriguing type of loan.
Who uses equity release and why?
More and more retired people are using equity release as a way to unleash the money that they currently have tied up in the home they own.
The reason for this is simple; house prices have risen significantly and continue to creep upwards, and yet the only way to benefit from this is to sell up, which is obviously not ideal for everyone.
Equity release provides an alternative to downsizing, as it lets you stay put in your family home and still reap the benefits of the buoyant property market.
Rather than just about scraping by in retirement, or having to make major compromises, equity release is perfect for over-55s who own their home outright and are eager to get out there and revel in the retired lifestyle.
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How does repayment work?
Equity release is a form of loan, so of course you are expected to repay the amount borrowed, along with interest that has accumulated in the interim.
Unlike a standard mortgage, equity release doesn’t have monthly rolling payments to worry about. Instead, repayment takes place when the home is sold, usually after you move to a care home or die.
It may be a bit of a morbid thought, but this is often better than the alternative. You can’t enjoy the cash that’s trapped in the bricks and mortar of your property once you are gone, so why not get the best of both worlds with equity release?
What about tax?
You might think that there could be some slice of tax to pay when releasing equity from your home to fund your retirement. Thankfully this isn’t the case, and you can get the full amount offered by the lender without needing to hand any over to Her Majesty’s Treasury.
Further good news is that you don’t have to stick to spending the money on anything specific. If you want to head on the holiday of a lifetime this year, and maybe book a few more trips when the time is right, go ahead!
If you want to splash out on an extension or renovation work at home, go for it! If you want to help out your kids with deposits to buy their own homes, feel free!
This flexibility reveals that the comfort you get in retirement from equity release doesn’t all have to be directly beneficial to you; it can be more to do with helping others, and more importantly seeing the good work that your money does while you are still around.
Because of the way that equity release loans are repaid, your estate will be smaller when the time to inherit arrives. But so long as you are aware of this fact when you leverage equity release, and it makes financial sense to do so, then it should not be a major barrier.
Not having enough money during retirement can be the ultimate slap in the face after a lifetime of work.
If your home is your biggest asset and it owes you thousands, as well as having undergone a rapid price rise over the decades, this could solve all your problems. Get sound financial advice, and see if equity release is right for you.
