By the time you reach your middle to late 50s, you are likely to have made a considerable investment in your home – which hopefully represents a significant capital value in the equity you own.
You might want to unlock that capital and put it to better use:
- to supplement or bolster your pension income after retirement;
- find an alternative to “downsizing”, without having to move home;
- if you are coming to the end of an interest-only mortgage, you might need the cash to make the final capital repayment;
- use the equity in your home to pay off other debts; or
- take the extended world cruise or holiday of a lifetime you had always promised yourself.
These may be just some of the reasons why 2017 saw record numbers of homeowners opt for equity release – together they arranged for a total of £3 billion of private equity to be released from their homes, reported the Telegraph newspaper on the 11th of January 2018.
The need to compare equity release plans
As the demand for equity release solutions has increased, so has the number of different providers and the individual schemes they offer. With the number of options currently standing at 78 different plans – more than three times the amount there was ten years ago (the Guardian newspaper pointed out on the 16th of September 2017) – it is essential to compare equity release closely before making any final decision.
When you compare equity release solutions, you are likely to find many differences between the various products on offer:
- for some, you need to be at least 55 years old, although others may restrict eligibility to those over 60;
- some providers offer both home reversion – which involves the sale of a proportion of your home, which you may continue to live in through paying rent;
- others offer (the more popular) lifetime mortgage – which is effectively a remortgaging of your home, but on an interest-only basis, and one which is not due for repayment until your death or your move into long-term residential care;
- lifetime mortgages have also become more sophisticated products in recent years, with many now offering the option to draw down the amount you have agreed in equity release in various stages, as and when the funds may be needed (this reduced the borrowing period and, therefore, the amount of interest that accrues);
- some lifetime mortgage schemes also allow you to make repayments of interest in advance of your death – so reducing the total amount of interest finally payable and helping to avoid the compound effect of paying interest on interest as the total amount rolls over from year to the next;
- critically, of course, you need to compare equity release schemes in order to establish the interest rate charged by competing providers and the terms and conditions offered by each one;
- to help you compare equity release schemes, you might also want to use a free equity release calculator to gain a broad indication of how much you might be able to borrow through a lifetime mortgage, based on the current value of your home.
Comparing equity release schemes and weighing the undoubted benefits against the costs (the impact on your children’s expectations of an inheritance, for example) needs to be taken very seriously. Equity release is not for everyone, and you may want to consult an independent financial adviser before committing yourself to any particular scheme.