The challenge when reaching retirement age is ensuring funds will last throughout the rest of your life. This is when homeowners may look at alternative methods to boost their retirement income alongside their pensions, savings and potential Lifetime ISA funds they may have saved up. Occasionally this will be releasing funds from their property, known as equity release.
What is equity release?
Wren Sterling explains: “Equity release allows homeowners to receive a lump sum of their funds as a loan based on value of their property. This loan usually doesn’t require repayments, and unpaid interest is added to the loan. It also doesn’t need to be repaid until the policyholder dies, or moves into care. This allows them to continue living in their home.”
They also explain that it is important to understand how releasing equity can have an effect on the value of the overall estate. And, it may affect your entitlement to means-tested benefits.
According to 2019 research the most popular reasons for equity release are;
- Home or garden improvements
- Paying debts
- Holiday funds
- Gifting to friends or family
- Clearing outstanding mortgage funds
- Help with regular bills
Where does expert financial advice come in?
As equity release is effectively a debt that affects the value of an asset, it should be factored into overall financial planning considerations. It’s also a specialist market so many financial advisers, including Wren Sterling, will refer enquiries to a third party.
What are the risks?
Estate planning and inheritance tax are impacted if someone chooses to release equity from their home. It can reduce the value of an estate.
Equity release will not be suitable for everyone, but it could be worth considering for homeowners looking for alternatives to downsizing or loans.
However, as equity release cannot be reversed easily and there may be penalties for attempting to repay the loan and end the plan early, borrowers should think carefully before applying for equity release – and consider taking advice on their succession plans.
Qualifying members* of our Member Rewards scheme can arrange an fee-free initial meeting for pensions, investments & protection advice from Wren Sterling at any of our branches or by completing the online enquiry form.
Equity release includes Home Reversion Plans and Lifetime Mortgages which are complex products. To understand the features and risks, ask for a personalised illustration. A lifetime mortgage is a loan secured on your property. Your home may be repossessed if you do not keep up repayments on your mortgage.
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