Using The Equity in Your Home

Once you have retired, you will probably find that you are no longer eligible to obtain certain lending privileges that you had been accustomed to when you were working and earning a regular income. And, whilst some people will have adequate provisions for their retirement, such as an occupational or personal pension and/or savings, for many, they will have to survive on the basic state pension which we all know is difficult.
So, What are the Options?
Many retirees who are homeowners find themselves "asset rich but cash poor". In other words, they don't have access to much cash and savings but they own a valuable asset in their house. Perhaps their pension isn't worth as much as they'd hoped or their investments haven't performed as well as they expected.Equity release might be an option.
What is Equity Release?
'Equity' is the difference between the market value of the property and any claims held against it. To simplify, if your house was worth £150,000 and your mortgage was fully paid up, you'd have the full £150,000 equity against which to secure for borrowing purposes. Equally, if your house was worth £150,000 and you still owed £80,000 on your mortgage, then you'd have £70,000 worth of equity against which to secure for borrowing purposes.Equity release plans are sometimes called lifetime mortgages, home reversion or home income plans and they are a way of releasing cash for any purpose. It may be to buy a new car, fund a holiday or make some home improvements. It can also be used for debt consolidation purposes or simply to make day to day life more manageable. Whatever you wish to use the money for, equity release essentially allows you to borrow money against the value of your home, with any debt being repaid from the sale of your house upon your death.
They can be extremely useful but can also be quite complicated to understand and are a major step for many people. Your house is almost certainly the most valuable asset you own and it is, after all, your home, so it's important to seek sound advice before entering into any agreement. An independent financial advisor is highly recommended. They will look at your overall finances and tell you if equity release is the best option for you, bearing in mind that, in some cases, you may risk losing certain benefits as a result and there are also income tax implications so seek advice first.
What's So Attractive About Equity Release Plans?
- They can provide you with a lump sum, a regular income or both
- The lump sum could be tens of thousands of pounds and the income boost might be worth a hundred pounds or more each month
- Money released from the value of your house is free of tax although there may be tax to pay on any income or growth if you then decide to re-invest the cash
- You don't have to sell your house or move home to release equity. With a reputable equity release scheme, there is a cast-iron guarantee that you will be able to live in your home until you die and, in many cases, will still be able to leave something of the property's value to your family if you have any.
- They can also be a way of cutting inheritance tax bills and paying for care bills
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