There are many reasons why you might need extra cash in retirement.
Maybe your mortgage term is coming to end with outstanding debt still to pay? Maybe you are looking to raise cash to pay for the cost of care or to pass to loved ones while you are still around to see the good your money can do?
One option for finding the money you need is equity release. This frees up funds held within the value of your home, giving you access to much-needed cash while allowing you to remain in your property.
This may seem like a scary choice. Compound interest can see your debt increase quickly and unlocking cash from your home reduces the amount you can pass to loved ones on death. It can also affect your eligibility for some means-tested benefits.
While equity release might not be for everyone, for others, it is an option worth considering. With the help of Fingerprint’s team of expert advisers, you can weigh up the risks, knowing you are in safe hands, whichever option you choose.
There are two main types of equity release
Equity release means releasing the value locked up in your home. There are two main ways to do this.
A lifetime mortgage
The most popular type of equity release is a lifetime mortgage.
A lifetime mortgage allows you to take out a loan secured against your home, without making regular repayments.
Instead, the borrowed amount accumulates interest. Accrued interest, plus the initial amount, is then deducted from the value of your estate when you die or enter long-term care.
With a lifetime mortgage, you still own 100% of your home.
Interest can add up quickly so speak to us before you choose this option, and we can help you decide the best way to manage it. We can put a plan in place to help you pay off interest as you go or suggest a series of smaller loans that avoid interest accumulating on the whole amount.
Deducting the borrowed amount from your estate could severely limit the amount you can pass to loved ones on death, but you might use the freed-up amount to gift a living inheritance.
“Giving while living” is a fantastic way to have a positive effect on the next generation, while you are still alive to witness the difference it makes.
A home reversion plan
With a home reversion plan, you forfeit sole ownership of your home, selling all or part of your property and receiving a lump sum in return. There is no interest to pay.
The downside here is that you no longer have sole ownership of your home. When your property is sold, the provider will take back their share and the remaining amount will go to your estate.
You will normally receive between 30% and 60% of your home’s market value. You should also be aware that following your death, the house sale could happen quickly. Your family may need to sort through your things and vacate the house within a month. This could cause additional stress at an already difficult time.
Speak to us before you decide, and we can fully explain to you the pros and cons of this option and its ramifications, both now and in the future.
You might consider an alternative to equity release
Downsizing
If you don’t think equity release is the right choice for you, but you’d still like to use your property to free up funds, you might consider downsizing.
Selling a large home when you no longer need the extra space could supply the capital you need. You’ll have to think about what you plan to leave to loved ones, and also ensure you’ve thought about the memories you’ll be leaving behind.
Get in touch
Equity release can seem like a scary option but managed correctly it can provide required funds at just the right time.
If you need to free up a large sum in retirement, be sure to speak to Fingerprint Financial Planning.
As with many financial decisions, there is no one “right” answer, and what is right for you might not be the best option for someone else.
Our team of experts can work with you to understand your situation, explaining the pros and cons of all the available options, giving you peace of mind that the choice you make is the right one for you and your loved ones.
Get in touch by emailing hello@fingerprintfp.co.uk or call 03452 100 100.
Please note
Equity Release will reduce the value of your estate and can affect your eligibility for means-tested benefits.
