Is equity release a good idea? That can depend on what you intend to use it for. One of the first questions that is often asked about equity release is “What can I use Equity Release for?”.
Luckily, not only is the money received from Equity Release mortgage tax-free, but there are also very few limitations on what you can use the funds you receive for.
Below we cover some of the most popular uses for equity release, but there are many others. If you’d like to know more details, then please get in touch with a local Equity Release adviser who should be happy to help answer any queries you may have.
Equity Release can come in useful for those who face a shortfall when their interest-only mortgage comes to an end. Unfortunately for some, payments over the years may not have added up, or the investments have not returned the value that was necessary, and they get a letter from the bank asking for a large sum they cannot afford on their current income.
Alternatively, if you only have a small portion of your payment mortgage left to run, Equity Release can be a way to replace the current monthly payments with deferred payment of a larger lump sum. This then frees up your day-to-day finances for other things.
By using a Lifetime Mortgage loan secured against your house, you’ll get relief from ongoing debts and have peace of mind from knowing that you can stay in your own home for as long as you need to.
Some forms of credit cards and loans can be very expensive, and if you do not expect to pay them off quickly, then Equity Release might be a better option. By releasing a tax-free lump sum, which is only repayable when your house is sold or if you die or go into care, you could use this money to repay your debts.
You may want to look carefully at the interest rates on both your current debts and the money you could release from the value of your house. If the interest rate on an Equity Release loan is lower than on your line of credit then, in the short term, Equity Release could mean more of your estate is left intact. In the longer term you would need to consider the extent to which interest rolls up on the Equity Release loan.
As ever, you should discuss everything with an independent financial adviser to make sure all the issues are covered and you understand the comparative costs and risks.
There are many things around the home and garden that you may wish to improve, especially as you have more time to enjoy your home and garden and you may also have some changing needs that come with advancing age.
Adding a conservatory – with more leisure time available, many people decide to enhance their homes by building a conservatory. This can provide a quiet sanctuary where they can enjoy their garden, watch birds and other wildlife and hopefully, enjoy many hours of sunshine.
Garden landscaping – You may wish to lay a lawn, install a patio or low-maintenance shrubs to make your garden easier to manage and more attractive.
Updating your home & garden – whether a new kitchen, bathroom, garden landscaping, general decoration and furnishings.
Adding an extension – for some people retirement also allows them the time and freedom to undertake larger home improvements such as converting a loft or adding an extension.
Help with the cost of running your home – after retirement, many people find themselves with a reduced amount of income and it can become increasingly difficult to cover the cost of household bills. With gas and electricity costs and council tax seeming to be constantly on the rise, many people can feel they have no option but to sell their property and downsize. Most equity release plans allow you to receive smaller payments rather than one large lump sum. This can allow you to drawdown money when you need it to help with bills or other unexpected expenses.
Home improvements to meet your changing needs – our needs can change as we get older and that may mean making some adjustments to our homes, such as a walk-in shower or some practical safety features. Using equity release to fund these improvements can help you continue to enjoy full use of your home for as long as you wish to live there.
One of the most common uses for Equity Release, and one of the most rewarding, is using the equity in your home to help your family. Helping your children or grandchildren onto the first step of the housing ladder can feel immensely rewarding for you and a huge relief for them. And with property values rising, many prefer to do it now rather than wait until an inheritance.
Or imagine the freedom you could give to a family with growing children if you were to help them pay off their mortgage. Instead of keeping up mortgage payments, they can think constructively about how to use their money to improve their lives too. Just make sure it’s clear whether any money you give them is a gift, or a loan.
Over 55 Equity Release can help retirees boost their retirement income, either by paying off existing debts to reduce outgoings or by supplementing pension income, making life financially that bit easier. An Equity release plan can come with a “reserve” facility, that contains additional funds that can be taken when needed, without having to pay any interest until then.
But these are not the only uses for equity release. We have outlined some of the most common uses, yet there are many more such as:
Holidays – you can use the funds released to enjoy traveling and holidays in your later years. There is also the option of using the funds to help purchase a holiday home, whether in the UK or abroad.
Medical bills – whilst the NHS provides medical care for everyone in the UK unfortunately waiting lists have been increasing. And there also a range of medications and procedures that the NHS will not cover. Using equity release, whether through home reversion or a lifetime mortgage, can finance self-funded medical treatment – allowing you can get on with your life.
In-home Care – When it comes to long-term-care planning, equity release schemes can be useful, but only if you’re looking to fund care in your own home and you do not qualify for local authority support. Although if you expect that you’ll soon need to move out into residential care, then equity release probably won’t be suitable for this purpose.
There is a lot to consider when it comes to equity release, whether it’s a lifetime/equity release mortgage or a home reversion plan. From the effect it may have on your tax and benefits, the potential impact on your estate when you use equity release, the overall cost and several other considerations which need to be thought through.
Knowing what you can and will be spending the money released on is an important part of the equity release process, as it can help determine how much you need and when, if it’s important to have any funds kept in reserve, what the cost may be and also if there any alternative solutions.
We are a Bristol based Equity Release advisers and are always happy to have a no obligation chat around equity release. Please get in touch if you have any questions you would like us to help answer.