Article | Sep 2024
Are you searching for ways to improve your finances as you head towards retirement? There are multiple ways you can achieve this, including using the wealth locked in the value of your property.
One financial tool used by homeowners is equity release. Releasing equity from your home could provide you with a lump sum of tax-free cash. This could be used to help fund home renovations to make your life more comfortable, or even contribute to going on your dream holiday. The most popular form of equity release is a Lifetime Mortgage.
In this article we will explore when the right time is for equity release, as well as exploring some of the benefits and other things to consider.
If you're first wondering how equity release works, we can explain it in simple terms. The amount you can release will be calculated by a lender based on your personal circumstances, including the age of the youngest homeowner (which must be 55 or over) and the value of your home. It's important that you get in contact with an adviser first so that they can give you unbiased information. Responsible Life have qualified advisers across the country who can provide expert advice on what equity release might mean for you.
As is common with most loans, there are certain criteria that you need to meet before you can apply for an equity release product. Firstly, you (and the youngest homeowner in the property) must be over the age of 55.
In addition, the value of the property you own must be at least £70,000. If you meet both the age and property value requirements, you can take the next step to potentially release equity from your home.
Be assured that you can take this at your own pace. We understand that this is a huge financial decision for the long-term, and that you may need more time to decide. Responsible Life will let you move forward with the process when you feel ready.
Don't be put off if you already have an existing mortgage. You could still be eligible for equity release. In fact, some people take out equity release to pay off the remainder of their current mortgage. It might be appealing as you could enjoy a more flexible budget where you can adjust payments based on your lifestyle goals and have a no-negative-equity guarantee.
A no-negative-equity guarantee means that you will never owe more than the value of your home. When a Lifetime Mortgage is eventually repaid after you pass away or move into long-term care, you or your beneficiaries will not have to repay more than the amount your home is sold for, even if the amount owed is higher.
Also note that the older the age of the youngest homeowner, the higher the percentage of equity you could release will be. Therefore, the question of when to release equity from your home might also be answered by how close the amount available is to the amount that you think you will need.
Use the equity release calculator to get an estimate of the amount you could release and, if you're interested in how it could work for you, speak with us to book a no-obligation meeting with one of your advisers.
Equity release could have many benefits for you. It offers you the freedom to spend the tax-free sum in a variety of ways. However, there are many more reasons to consider choosing equity release beyond this.
The interest rates on an equity release product are fixed for life. This means you won't have to worry about fluctuating interest rates and what it could mean for your budget. Be aware though that interest compounds, meaning the amount owed increases over time.
In some cases, you might be able to take out an equity release drawdown product. This means you don't have to release what is available to you in one go. Instead, you could choose to have an interest-free reserve of cash that you can draw from at a later date. Interest will only be added to funds that you have drawn from this reserve.
If you do decide to take out a drawdown product, an interest rate will be applied to each release that you access from the reserve. This may be higher or lower than the original rate. Taking advantage of drawdown can be a useful way to control the costs of releasing equity, particularly if you don't have an immediate need for the cash.
Unlike other financial options such as downsizing, equity release in the form of a Lifetime Mortgage ensures you remain the homeowner of the property.
Although, it is worth considering that the value of your estate will decrease. That is because the money borrowed is paid back after you pass away or enter long-term care. It most commonly happens through the sale of the house, although that isn't the only choice.
We have established when and how you are eligible for equity release and the benefits. But there are some other things to consider before applying for equity release.
First, your entitlement to means-tested benefits could be affected, therefore you need to discuss with an adviser what the best option is for you financially.
You should also be prepared for the additional costs that may come with releasing equity. These costs involve paying for an expert equity release adviser. At Responsible Life, our single advice fee is £1,690 and is not payable until your application is completed. There is also no charge for your initial meeting with our advisers, so it won't cost anything to find out whether equity release could be right for you.
You will also have to pay for an independent solicitor to check over all documents with you as a part of the advice process.
The final additional cost is for the valuation of the property. Make sure you understand what these potential costs could be before you go ahead with an application. In a no-obligation appointment with us, we will explore all potential costs with you before you choose to proceed, ensuring that this is the right decision for your financial situation.
If you want more information on equity release, schedule a call with our Information Team today!