To access money from your home, should you get a lifetime mortgage or equity release?
Equity release plans can be extremely beneficial to those who are short on cash in or nearing retirement, but experts warn that you should not enter into one lightly.
According to Paul Thomas,
Last year, elderly homeowners were able to access nearly £3.9 billion of their home equity to help them get through retirement.
More than 40,000 over-55s released cash from their homes in 2020, according to industry body Equity Release Council (ERC), to fund home improvements, pay off debts, or give money to loved ones.
While equity release plans can be extremely beneficial to those who are short on cash in or nearing retirement, experts advise caution when entering into one.
Below, we explain how these loans work and what your options are so you can decide if they’re right for you.
Lifetime mortgages and home reversion plans are two products that allow older homeowners to release tax-free cash from their property through equity release.
By far the most popular option is a lifetime mortgage.
A lifetime mortgage allows you to borrow against your home while still owning it if you’re 55 or older.
You are not, however, required to make monthly repayments, unlike with a traditional loan.
Instead, interest is typically rolled up, causing your total debt to grow over time.
When you die or go into care, your debt is discharged, and your home is sold, you can leave whatever is left to your loved ones.
Importantly, lifetime mortgages allow you to stay in your home for the rest of your life, avoiding the need to downsize in order to free up cash.
The amount you can borrow ultimately depends on the value of your home and your age, but the current maximum is 58 percent of the value of your home.
You may be able to take the money as a lump sum or in smaller, more regular installments, which is useful if you need the money to supplement your retirement income.
A home reversion plan is another type of equity release loan, though it isn’t as common as it once was.
Home reversion plans, like lifetime mortgages, allow you to release equity.
UK news summary from Infosurhoy
What’s the difference between a lifetime mortgage and equity release when it comes to accessing money from your home?
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Should you get a lifetime mortgage or equity release to access money from your home? How the two options work
iMoney is partnered with Age Partnership, a whole of market independent financial advice firm specialising in money matters for the older generation.
If you are considering equity release, you can find out more by downloading iMoney’s free guide, written by Elizabeth Anderson. To request your free copy, call 0808 239 1913 or download here.