Equity release is a way of borrowing against your property to fund retirement.
Equity release lets you borrow against the value of your home or other property to pay off your mortgage and fund your retirement. This means you don’t have to sell your house to get cash. Instead, you can use the equity from selling your home to repay the loan.
How Do You Know If Equity Release Is Right For You?
If you are over 55, an equity release can allow you to withdraw cash from your home without selling.
However, equity release is a big decision, and there are a few things to consider before deciding whether equity release is suitable for you.
In this article, Equity Release Adviser John Lawson discusses what equity release is, how retirement interest-only mortgage rates work, and whether or not equity release is right for you.
What’s Equity Release?
With equity release, older homeowners whose homes are valued at more than £70,000 can release tax-free funds from their homes without selling or moving.
How Do Retirement Interest-Only Mortgages Work?
You’ll only be paying interest on your monthly mortgage repayments with an interest-only lifetime mortgage.
When the plan’s term is over and you have entered a facility for long-term care, the actual loan is repaid at the end.
Rates for Retirement Interest-Only Mortgages
Rates on retirement interest-only mortgages are usually variable and capped.
The initial interest rate on RIO mortgages can be as low as 2.39%, reaching a maximum of 3.74% in 2 to 10 years.
This example would result in an overall average rate of 3.4%.
Compared with traditional mortgages, ROI mortgage interest rates are typically lower than lifetime mortgages.
Benefits Of Retirement Interest Only Mortgages
Because interest is repaid monthly and does not roll up, Rio mortgages are generally more affordable than equity releases.
There is no requirement to downsize to access your house’s equity.
You also don’t have to worry about repaying the capital since it doesn’t have a fixed term. It will only be due when your house is no longer needed.
Is Equity Release Right For You?
You can only find out if equity release is a good option for you by speaking to an accredited equity adviser.
Before taking advantage of equity release, it’s necessary to get certified financial advice from an advisor.
You’ll also need to meet the provider’s criteria for equity release.
You may be interested in equity release if you are approaching retirement age or are retired, asset-rich, and have poor cash flow.
Alternatives To Equity Release
- Selling other assets, such as your car, or selling your house and moving somewhere cheaper would be an option.
- You could take out an unsecured loan or mortgage and commit to making the payments for the rest of your life.
- You could rent out a room or part of your house to lodgers to earn extra cash.
- The state offers benefits explicitly designed to help homeowners repair and improve their homes.
Is Equity Release Safe?
The Financial Conduct Authority regulates equity release providers, and increasingly many of them are members of the Equity Release Council.
The system of regulations established by this trade body ensures consumers’ safety when utilizing equity-release products.
In addition to the no negative equity guarantee, consumers are guaranteed tenure security. In this situation, borrowers who use a lender that is a member of the Equity Release Council will never owe more than the value of their property when they sell it after they pass away or go into long-term care.
In addition, equity release can only be obtained following financial and legal advice, and unlike a traditional mortgage, there is no risk of repossession (if the terms are met).
Conclusion
As a retiree, an equity release can provide you with more financial security and could be an attractive option.
Whatever you choose, it’s always best to consult your financial adviser to ensure it’s right for you.
