Equity release could be the most effective way to enjoy your retirement
The major part of life is taken up with building up our security, homes, and families. When we finally step off the treadmill which one of us wouldn’t want to make the most of the time when work isn’t the priority? At the time when we should be relishing the fruits of our labour, the cost of living continues to increase so being able to appreciate retirement is not so easy.
However, if you are a homeowner and over fifty-five its possible to release the equity tied up in your property as a tax-free amount without the need to sell, and the capital you released can be used to repay debts or a current mortgage, help towards a child or grandchild’s education, or to simply treat yourself to something special and unique.
EQUITY RELEASE has come a long way since the late 1980s where financial products were introduced that combined traditional interest only mortgages with investment bonds. These products were flawed and dangerous. Both the interest rate on the mortgage and the returns on the bond were variable. So, when the stock market plummeted and mortgage interest rates rocketed, borrowers were left with insufficient returns to cover the mortgage payments.
Today, the over 55s equity release market is closer to the mainstream mortgage market.
Innovation, along with many new providers now means that equity release plans are becoming available for use throughout your lifetime. Customers wanted flexibility and they now have it. Today’s products have options for customers who want to repay capital without penalty, who want to pay off the interest, who want to partially repay the interest without being tied or committed. Today’s products now have all these options.
Traditionally, equity release was often considered a ‘one-off’ transaction. Today it has evolved into a financial product which can allow you to draw down additional cash at a fixed interest rate, as and when required, from a pre-arranged Cash Reserve.
The typical ‘Drawdown’ Equity Release Plan allows you to take an initial lump sum. This is paid free of tax and can be spent as you wish. At the same time, a ‘Cash Reserve’ is set up, for an amount of your choice, subject to the provider’s maximum. This is similar to an overdraft. You don’t have to use it and most providers don’t charge anything if you don’t use it. Some people use the initial lump sum to clear debts or an existing mortgage. The reserve is used as and when they require it, for holidays, to replace the car, home improvements, to help children and grandchildren or for emergencies.
Others use the reserve as regular income, paid monthly or annually to boost their pension. As the release of funds is spread over time they are far more cost effective than traditional schemes where one would release a large sum of money in one go and where interest accrues on the entire amount borrowed
Equity release may involve a lifetime mortgage or a home reversion plan. To understand the features and risks, ask for a personalised illustration. Equity release may not be right for everyone. It may affect your entitlement to state benefits and will reduce the value of your estate. Think carefully before securing other debts against your home.