Could releasing money from your home help your retirement?
Increasing numbers of older people are turning to equity release as a way of raising much-need funds for their retirement.
Allowing those who are asset rich but cash poor to draw on their home’s value in their retirement, the loan is repayable after their death.
The ten points below are for your clients to consider before they decide which way to go.
Equity release allows people to draw on their home’s value without having to move, but any money unlocked this way must be repaid with interest after you die or need long-term care. Conditions of such schemes vary and they carry fees. It allows you to release equity in your home to fund changes or pay care bills and stay in it at the same time.
There are two types of equity release product, a lifetime mortgage, or home reversion plan. Both have their pros and cons, but both mean you can stay in the home until you pass away, at which point the property is usually sold to clear the loan.
Using equity release can come with high fees however and does often mean locking money away that you may not be able to leave to your loved ones.
Below are some of the key questions to ask when considering equity release.
Consider all available alternatives such as moving to a smaller home first as the capital raised this way will cost you less in moving expenses than in equity release set-up charges and interest.
Seek family support
Its essential to discuss your plans with your family before proceeding with equity release if you do not wish to move. This will avoid any unnecessary family surprises at a later date and they may be able to suggest an alternative solution.
Get professional advice
Find an independent specialist in equity release advice as it will be difficult to find the best deal yourself. Not only that, many of the schemes are available only through authorised intermediaries.
Choose your adviser carefully
Can they provide advise on entitlement to welfare benefits and all aspects of long-term care funding? Some of which may be relevant to you now or at some point in the future. An adviser who specialises in all these areas will be able to explain any relevant issues to achieve the best outcome for you.
Find out about fees
Ask your adviser about equity release fees – and ensuree you get value for money.
How much can you borrow
Similar to mortgages, equity release loans are based on set loan-to-values; the size of the loan as a percentage of your property’s value.
However, an equity release mortgage is offered on a far lower loan-to-value than a traditional mortgage – this is because interest is not paid off on the loan and rolls up instead, meaning the amount to be repaid increases over time. Equity release providers should guarantee that you will never have to repay more than the value of your property.
Only borrow what you need
Only borrow as much as you intend to spend or give away. You will earn much less from cash left on deposit than the interest you will have to pay for borrowing it in the first place. It could also cut your entitlement to means-tested benefits. You may alternatively wish to consider a drawdown plan that offers a cash reserve facility. Rather than just receiving a lump sum, you have the option to release your cash over time, as and when you need it. These plans can often prove more cost effective because interest is only payable on the cash you have taken.
Pay attention to the APR
When comparing lifetime mortgage interest rates always pay particular attention to the APR and not just the headline rate. The difference can often add up to 0.5% on the rate actually charged. This is due to the costs of setting up the arrangement and how interest itself is calculated.
Do you understand the product?
Ask your adviser about continued support and advice from claiming welfare benefits, or care and support from the local authority, to mitigating inheritance tax. Advisers that specialise in elderly client advice are in a better position to help than a traditional mortgage adviser.
Make sure that you have understood the various features of equity release plans, and established which are most important to you. If you’re planning to take out a lifetime mortgage, how do the set-up costs vary from one plan to the next?
Do you plan to move in a few years time or is there a chance that you may wish to repay some or all of the loan at some stage in the future? Do you want to guarantee that some of your equity is protected so that it is passed on in your estate? A good adviser should be able to talk through all of a plan’s features in a way that you can understand.
Get legal support
You will need a solicitor so if you already have one make sure to ask if they are familiar with equity release paperwork. Otherwise the process could take longer and cost you more in fees. There are now a significant number of solicitors who have undertaken additional training in this specialist area.
Know your goals
Make sure you have a clear idea on your key goals; your personal priorities and views on the direction of house prices will influence what is right for you.
Call us now on 01204 884545 for more information on Equity Release Plans