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An equity release scheme allows homeowners to access the value of their property to receive more cash to prepare for retirement. It’s an attractive option for many who find themselves facing a pension shortfall or a sudden, unexpected expense. However, while it allows you to tap into the wealth held in a property without having to move, it is also an expensive lifelong commitment.
There are two main types of equity release, and each one offers a unique way to access money tied up in your property:
Lifetime Mortgages – This allows homeowners to borrow a portion of the house’s value. This amount is charged with interest, but nothing usually has to be paid back until the borrower dies or the home is sold.
Home Reversion Schemes – The homeowner will sell a share of their property for less than market value and alongside this, will have the right to stay in the property for the rest of their life. Upon their death, the lender will receive the percentage they own from the property’s sale.
While these seem like viable options for those struggling, it can quickly become a very expensive solution.
When struggling, many homeowners may automatically turn to equity release thinking there are no other options available. However, there are alternatives and it’s important to know them in case one of them is better suited to any unique circumstances.
Upon retirement, many homeowners find themselves asset rich but cash poor, one solution to this is to free up some of the cash locked inside their houses. While equity release does give people the opportunity to do this, it could be a cheaper, more effective option to downsize the property altogether.
While this does mean leaving the house behind, moving into a smaller property holds many benefits, especially for those at retirement age. It also means equity will be released from the current house, freeing up extra cash.
However, it is important to consider the fees that will apply when moving house, such as agency, taxes, or legal fees, to make sure it is worthwhile in the long run.
Relocating to a cheaper area
Taking a significant cut to the monthly income can mean that the everyday costs of living need to be cut down. One of the biggest ways this can be done is by moving to a new house in a cheaper area.
The new area won’t just help cut down on monthly bills, but the chances are there will be a little bit of money left over from the sale. So, while it may not be downsizing fully, some of the benefits are still there.
Renting a room
When reaching retirement age and after the kids have left, many find themselves left with more room in their house than needed. While downsizing can help people move into a more suitable property, leaving the memories behind can be tough.
One way to solve this issue and to help bring in some extra income to top up a pension is to rent out a room to a tenant. The idea of having a tenant can be worrying, but it could be a family member or close family friend that rents a room from you.
Arranging a traditional mortgage
If the home is owned outright, then taking out a traditional mortgage can be a more cost-effective strategy. If you are considering some form of equity release, it may be worth talking to a mortgage advisor beforehand to discover whether remortgaging the property for a larger sum could release some extra cash from the property.
Equity release isn’t always the only option and the interest on the money owed can quickly build up. This debt needs to be paid back upon the death of the homeowner and this will be taken from the estate, meaning there will be less inheritance to pass on. It’s best to explore all the opportunities available and if it does transpire that selling the house is the best route to take, then We Buy Any House can help sell your house fast.