The majority of people in the working world spend the largest part of their lives putting themselves into a comfortable position for when it comes time to retire.
This typically involves putting money into a pension or some form of assets so that the financial aspect of their later life is taken care of. However, not everyone has the luxury of a sizeable pension they can use to prop them up during retirement.
Equity release is a financial product which can be used to make up for a shortfall in your pension or to address a surprise expense once you’re done with working. Without a regular paycheck to cover unexpected costs, having access to something like equity release can make all the difference.
H2: Defining equity release
Equity release is, in a nutshell, a way to unlock the value of your property and turn it into a cash lump sum.
You can do this via different schemes or policies which can allow you to access – or ‘release’ – the equity (cash) tied up in your home if you’re 55 or over and looking towards retirement.
You don’t need to have fully paid off your mortgage to do this, and it can give you the ability to use the wealth which you’ve accrued within your property without having to move home.
This can be crucial if you find that you don’t have enough savings to meet your financial needs during retirement, especially if you find yourself with a large expense from out of the blue.
It can also be seen as an alternative to downsizing, where you would need to sell your home and buy a smaller, cheaper property so you can use the difference to bolster your savings.
H2: How can you use equity release?
There are two main types of equity release:
– Through making use of a lifetime mortgage
– Using a home reversion scheme.
These are both forms of loan which you take out on your home, with the specifics varying depending on which of the two you use.
Home reversion schemes are where an equity release company purchases a share of your home from you. This can be agreed at a specific percentage which allows you to receive the lump sum you require. The actual value of this percentage share will vary, as this won’t be settled until the property is sold. This can mean that you end up giving up more of the final property sale value to settle up.
Lifetime mortgages are the more popular option which are commonly used to release equity from homes. This type of loan comes with a fixed interest rate which is calculated on a rolling basis until you decide to sell your home. What can be helpful with this is that lenders will protect you against negative equity – meaning you’ll never need to repay more than the value of your house.
Whichever option you choose to use in order to release equity from your home, make sure you’re comfortable with the terms before agreeing to anything. Changing your mind or switching products after you’ve agreed can come with extra fees. Consider your options and go with the best option which suits your financial needs.