Equity release enables homeowners aged 55 and above to release tax-free cash from the value of their property. The amount you can release will be determined by several factors, such as your age and how much your property is worth. Depending on the equity release product advised to you, you may be able to either release your money as a series of smaller amounts, via a drawdown lifetime mortgage plan or in one big lump sum, with a lump sum plan.
If you opt to release equity, the good news is you can use the cash for most purposes. Here are some of the popular reasons for equity release, and what you need to do to get started.
Purchase A Holiday Home
Many people are surprised to learn they can use equity release to fund a holiday home sale. You may decide to purchase new property that you can use as an alternative holiday home. Whatever the reason, equity release can help you get started on your holiday home journey.
If you opt for equity release for this reason, you’re bound to wonder how long does equity release take. Retirement Solutions have a guide on equity release that is worth reading. They can take you through the three main stages of equity release and the amount of time it will take to complete each step.
Pay Off Existing Debts and Mortgages
Some people may head into retirement with outstanding debts looming over their heads. Whether it’s from accumulating credit card or loan debts, or still being burdened with a large mortgage, such debts can be a hindrance on how you live out your golden years. When you consider that your monthly income will be reduced in retirement, it can be even harder to make repayments.
Thankfully, there is the option to release equity from your property in later life. This will allow you to pay off any debts and free up some of your monthly expenditure. With a lifetime mortgage, which is the most popular form of equity release plan, there is no need to make monthly repayments, although you can opt to make voluntary repayments. This freedom from mortgage payments could enable you to enjoy a more relaxed and stress-free retirement as the loan is only repayable when you pass away or go into long term care.
Paying for Home Improvements
For homeowners up and down the UK, there may be certain home and garden improvement projects you would like to undertake to get your property up to your liking. Whether you want to update your kitchen, revamp your living space, or spruce up the garden, one of the most popular reasons for equity release is so homeowners can do just that.
There are numerous reasons why people undertake home improvement projects. For one, they can boost your property’s value. Secondly, they can greatly enhance your quality of life. Many homeowners might not wish to leave their property in their later years. Instead, they may wish to be able to access funds so they can stay in the home they love and perhaps give it a refresh. Before you get stuck into a project, you’ll need to establish how much equity you can release first.
Help Loved Ones Financially
If you have loved ones who are struggling financially, it’s natural that you will want to do everything possible to help them. There are some people who decide to ‘gift’ a sum of money now, instead of leaving everything until they pass away. This living inheritance could also be used to help loved ones to purchase their first home or pay university fees, amongst other things.
One question some people may have is whether they’re able to leave an inheritance for family members once they pass away if equity is released from their property. This is possible and there are ways to guarantee an amount with inheritance protection options now available with equity release plans.
Boost Disposable Income
When you enter retirement, you’ll likely want to know that you’re financially stable. It’s the dream, right? If you bought your property many moons ago, you may have significantly benefited from rising house prices. For that reason, equity release may be the most practical solution for you. A tax-free lump sum can provide long-term top-ups to your retirement income.
Some people opt for a drawn-down facility. This means you’re able to access additional funds as and when you require it. If you’re stuck and not sure what route to take, it’s wise to speak to an equity release adviser who can assist you and discuss the different options available.
New Car
If there is one item that many people would like to buy with the cash raised from equity release, it’s a new car. A reliable and modern vehicle can be a hefty expense, especially for those entering retirement. The good news is if you opt for equity release, you can put a portion of the cash into buying a new or used vehicle.
Make sure that you do your research when searching for a new car to get the best deal and understand that your equity release adviser will discuss your needs and rationale for releasing equity. As even if you release a substantial amount of equity, it might not necessarily be prudent to spend the entirety of it on the latest sports car, as tempting as it may be. You need to have your practical hat on and be realistic about what type of car you can afford.
Have An Emergency Fund
We know that life can throw curveballs when you least expect them. During your retirement, you may be presented with unexpected expenses, such as a home or car repair. Equity release could be used as an option for boosting your available cash reserves or give you access to a pot of money should you need it, via a drawdown facility. Allowing you to have funds ready and available for a rainy day.
So whether your boiler breaks down or there is a problem with your car, knowing you have the funds to fix such problems within an instant can take the weight off your shoulders. Once you release equity and have the money in your bank, try not to dip into it if you’ve specifically made the decision to create an emergency fund. A household emergency could happen at any time, and leave you without money for the month if you don’t have money put aside to deal with it at the time. Having money put away can help protect you.
Holidays
If your retirement is looming, you’re bound to be dreaming about how to live out your golden years. Some people have dreams of going on summer holidays, while others like the idea of travelling the world. Perhaps you want to tick off destinations on your travel bucket list or visit loved ones and friends who live on the other side of the world.
Should you release equity, you can use some of the cash to turn these dreams into a reality. Once you’ve released equity from your property, you’re able to spend the money as you wish. Just make sure to be realistic with your travel plans. For example, if you only release a small sum of cash, this might not foot the bill for an around-the-world extravaganza!
It must be noted that equity release isn’t suitable for everyone. For that reason, it’s important to take professional financial guidance from a qualified equity release adviser. Make sure you understand the ins and outs of equity release before getting started so you know exactly what you’re getting yourself into and can weigh up the pros and cons.
