5 Important things to know about equity release in retirement
When retirement rolls around, it’s important to have your finances in order so you can get the most out of your golden years.
Aside from a pension and personal savings, one other way to go about this is through equity release. This basically boils down to taking a loan that’s based on the current value of your home, and only needing to repay this and any interest after you die or enter care in old age.
There are benefits and downsides to equity release which you have to bear in mind when weighing up whether to go ahead, so let’s look at some of the most impactful aspects to help you choose.
Deciding whether equity release is right for you
One thing which could convince you to leverage equity release is seeing just how much money is currently locked up in your property.
Using the equity release calculator from Reader’s Digest will give you an estimate in just a few clicks, and you will then know whether or not it makes financial sense to proceed further.
Thinking about inheritance
The main concern that some people have when looking into equity release is how this will impact the value of their estate from an inheritance perspective.
There is no question that this type of loan invariably means that the amount you will be able to pass down to your loved ones after you are gone will be smaller, because lenders recoup the balance plus interest when your property is finally sold.
This does make the decision trickier, but it’s also important to think about how equity release will improve your quality of life.
If you would otherwise be under significant financial pressure from day to day, or be unable to afford those luxuries you denied yourself during your career, then inheritance might be less of a priority.
Of course some people choose to use equity release as a way to provide early access to inheritance to the intended beneficiaries of their estate. This might be handy if you have a decent pension, but don’t have significant savings other than this.
Considering your age
Another aspect of equity release which can significantly alter the amount you can borrow is how old you are.
Younger homeowners, who are at or just above the minimum eligibility age of 55, will not be able to release as much equity as their older counterparts.
If you need the money now, then it doesn’t really matter too much. But if you can afford to wait, then holding out on releasing equity might pay off.
Taking advantage of tax status
Equity release is not subject to tax, because it is effectively the equivalent of a loan like a mortgage, albeit with different end goals.
This makes it more attractive compared with other routes you might take to access the value of your assets. For example, selling shares or parting ways with valuable items might leave you liable for capital gains tax.
You will of course have interest accumulating on your equity release loan, as mentioned. However, the upfront advantages may be enough to outweigh this concern.
Understanding other eligibility requirements
As with all financial decisions, you should read the small print and make sure you are aware of eligibility requirements before you get excited about equity release.
You not only need to be over 55, but also own your home outright or have a teeny-tiny mortgage remaining on it.
The value of your home could also render you ineligible in some cases, as certain lenders will only release equity on properties worth £75,000 or more.
Ultimately if you do your research and think carefully about the options on the table, you can use equity release to your advantage in retirement.
