When you’re approaching retirement, it can be useful to receive a cash injection. But taking out a loan can put you in a precarious financial position. Instead, an equity release can be one of the most effective ways to get a financial boost. Below, we explore how equity release works and why it can help in retirement.
Viable for over 55s
Equity release is largely aimed at older homeowners. This is because it works by turning equity in your home into tax free money. This can either occur through a lifetime mortgage where you borrow against the value of your home, while retaining ownership of the house and avoiding monthly payments throughout your lifetime. The loan will usually be repaid after your death by selling the property. A home reversion plan is a much less popular option where you give up ownership of your home in return for a below market value fee and the right to live in the property rent free. A lifetime mortgage is useful for over 55s who want to enjoy a cash boost without worrying about loan repayments.
Funding retirement
For many, pensions are no longer adequate for retirement and extra finance will be needed. This can be used to enjoy your retirement more, or alternatively it can be used to support your family. It’s harder than ever for young people to join the property ladder and this financial boost can be a vital help. Indeed, it’s no surprise that in 2019 the market saw £3.9bn of property wealth unlocked by over 85,000 new or returning customers.
Rules and safeguards
Equity release is monitored by the Financial Conduct Authority and the Equity Release Council, meaning there are a number of rules and safeguards to give you peace of mind. For a start, interest rates in the arrangement will be fixed or have a cap if variable. On top of this, as long as you abide by the terms and conditions, you can’t be removed from the property. The lifetime mortgage also comes with a no negative equity agreement: when the property is eventually sold, you won’t be liable to pay any difference between the loan and the price.
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Financial security is key during retirement. And by using an equity release you can have peace of mind for you and your family.
