Having a happy, fulfilling time in retirement means being able to afford to do the things you want with the people you love most.
Even if you have a pension, this might not be enough to satisfy your financial needs, and for most people the majority of their money will be tied up in the home they own.
This is where equity release enters the fray, providing another way to fund your retirement and give you breathing space to enjoy yourself unhindered. Let’s look at what equity release is and whether it’s a good fit for you.
What is equity release?
Simply put, equity release is a way of borrowing against the value of your home without needing to pay anything back until much later.
This typically takes the form of a lifetime mortgage, which as the name suggests will only be repaid once you and any others named on the deed to the house are deceased.
There are other equity release products, but in general they aim to achieve the same thing; to let you live comfortably after retirement without your house monopolizing most of the value of your estate.
Why consider equity release?
Equity release can provide cash in retirement to people in lots of different circumstances. Whether you are not able to do all of the things you want to on your pension alone, or you want to make a major one-off purchase without turning to other forms of lending, there are plenty of reasons to consider this type of product.
Some homeowners even leverage equity release when they hit retirement age as a way to give gifts to family members who would otherwise have to wait a long time to inherit. Helping your kids get on the housing ladder is a good example of this.
What are the eligibility requirements?
Different lenders have different requirements that applicants need to meet in order to make use of equity release. However, as a rule you must be at least 55 years of age or older to take advantage of this type of loan, and also have paid off your mortgage.
Owning your home outright is not essential in every case, as some lenders will offer equity release products even if you still have a small mortgage remaining.
If this is true for you, the equity loan will partly be required to pay off your mortgage, which might eat into the total you receive as a result.
What are the downsides?
Equity release is not without its sticking points. As the amount you borrow will eventually be recouped when your house is sold in years to come, and this amount is subject to interest, it is inevitable that the size of your estate will shrink and those who stand to inherit will have to contend with having a smaller pot to share after you are gone.
Another element to consider is that you will be limited in the amount of equity you can extract according to your age. The older you are, the more equity can be released, so use this to adjust your expectations when comparing loan packages.
Lastly, equity release will rarely encompass the full market value of your property, no matter your age. You cannot remortgage for the entire sale price, so don’t assume that this is an option.
Even with these factors taken into account, equity release could be right for a lot of people. Your home’s value has probably soared since you purchased it, and rather than that money just sitting there doing nothing, it could be leveraged to make retired life so much more entertaining for you and all your family.