If you are considering if Equity Release is a suitable solution for your situation, then you are essentially weighing up whether the equity value of your property should, at least in part, be turned into cash or income.
So, Equity Release is only a viable or sensible option once other questions have been answered -first.
Those other questions must include examining what alternatives you have, as the value of the Equity Release solution can only be assessed against what else is available.
Selling your property/downsizing
The most obvious alternative is selling your property or downsizing, which are variations on the same theme.
Equity Release is a lifetime loan (mortgage) against the value of your property, so it is a liability held against the asset. This can be fine or not depending on several factors. Selling your home is a realisation of the asset value at the point you sell.
To compare the option of selling/downsizing and Equity Release, you could apply a strict financial comparison against possible future scenarios, for example future property price movements and how long you will live. You can assess how this looks against different variables.
However, as we point out elsewhere, we are talking about your home, not just an investment. If your home is too big for you in your retirement years, then this would be a factor as you may think it would be better to live in a smaller home, so downsizing becomes more attractive at this point.
Selling may be viable if you were to go and live with a relative or you were to move into assisted living, so the comparisons are not solely financial, but also have to factor in where you want to be living.
Looking at other assets you have and/or other borrowing options
Equity Release may be considered when you have other assets. For example you may have sums invested in ISAs or Pensions that you could draw upon. So you have a choice between releasing money from your investments/savings or your property. This can be difficult to assess as there can be powerful pros and cons for each option. On the financial side of things, you might decide that Equity Release is favourable if you think inflation is going to be high for a period, that’s because the value of the lifetime mortgage depreciates in real terms against rising inflation.
Alternative borrowing options may be viable if the amount you are seeking is modest, as personal loans, credit cards and even an ordinary mortgage (as opposed to a lifetime mortgage) may have greater flexibility or better terms overall.
Depending what you need the money for (e.g. some home improvements) there may be some government funding or schemes.
Finally, if your Equity Release is driven by a need to top up your income, then it could be worth exploring your income/expenditure patterns, and seeing what you may be able to save through some budgeting measures.
As always, and we think it is worth repeating, this is a complex area which does not – normally – lead to a simplified view. There will be multiple factors and considerations to weigh against one another. This is why advice is so important and finding a trusted expert who can take this big picture view, with you.
Equity Release
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
GET IN TOUCH
Main Tel: 01603 380331
Kings Lynn Tel: 01553 604844
Find out what we can do to help you with your finances. Get in touch with us today!