As you enter into your retirement years often it can seem frustrating that you are unable to tap into the equity within your own home. In many ways you can end up being “asset rich, cash poor”. The retirement years should be an enjoyable time of life and not one in which scrimping and saving is a daily necessity. If you own your home then there is a way to tap into the equity within your home and release some of it at a time when you either need to or would like to, in order to enrich your twilight years.
Finding an Answer to Financial Needs
Equity release schemes offer this and there are many equity release companies across the UK who can now assist the over 55’s in being able to enhance their retirement provision. Diversity and research are imperative to finding the best equity release plan amongst the plethora of schemes, rates, deals and options available.
• In order to find the right equity release scheme for your individual needs then it is recommended you follow a number of key steps. The first thing to do is shop around. You can either do this yourself or use one of the comparison websites available. If you are less internet-savvy then it is always a good idea to approach reputable financial institutions and enquire about what they offer. A number of reputable financial institutions offer equity release schemes.
• Another way of finding the best equity release companies and the schemes they offer is to contact the Equity Release Council (formerly SHIP) who has a find an adviser facility whereby they can source a local equity release adviser to your locality. All of their providers must adhere to a strict set of rules which offer the customer a great deal of protection. Always remember that this is your home and therefore any contracts entered into must be done so with the utmost caution. You would not let a stranger walk into your home without first asking who he was and what he wanted.
• Also weigh up other options that are available as a means of releasing equity. Perhaps you could downsize on your property and release equity in this way, therefore still owning your own home outright. Often this has other benefits such as a reduction in household bills or being able to consolidate debts such as credit cards and personal loans.
Deciding on the Best Product for You
Given the variety of products available in equity release, you have a decision to make on what is best. Two main products, home reversion and lifetime mortgage are available. Home reversion allows for the sale of your home with some nice advantages. You determine how much you want to sell based on the equity in your home and how much you need for your retirement. Since you retain ownership of part of the property, you are still considered an owner and allowed to reside in the home. You live there under a lifetime tenancy agreement. You will need to be at least 65 to consider this idea.
Lifetime mortgages as implied are loans. A loan with beneficial payments you actually live in the home without making any payment until death. You may repay the loan early if you decide to move from your home to a new home or retirement facility. As long as the home is considered your main residence you can keep it and the outstanding loan going. These retirement mortgages come in different categories: drawdown, lump sum, enhanced, and interest-only.
• You can elect to make a payment on your lifetime mortgage by choosing to take out an interest only product. You pay interest each month, which is smaller than paying principle and interest. At the end of the loan you owe the capital sum you took in the first place. It leaves inheritance for your beneficiaries and makes payments affordable.
• For those who do not have disposable income to make interest payments there are three other choices. Of these three, drawdown is the second most preferable when leaving an inheritance is important because interest accrues only on the funds used, not what is available in a drawdown facility. The other two options are lump sum options, where enhanced gives a larger sum of money.
If you decide that equity release is right for you then make sure you seek professional independent advice before committing to any contracts remembering this is not just a decision that affects you, but also your children and beneficiaries.