How does equity release help in securing your retirement?

Types of equity release

Before understanding how equity release can help you, it is important to understand how it works. Equity release is a scheme that lets you retain the use of your residential property, or any other property which has capital value, and provides you with a steady source of income or a lump sum amount. The minimum age for opting for this scheme is 55years.

Types of equity release

The two popular equity release schemes are:

Lifetime mortgage

This type of mortgage is different from ordinary mortgage options.  In this scheme, you take a loan by keeping any of your property as mortgage but you do not have to repay the amount of loan while you are alive.

The compounded rate of interest is added throughout the term of the loan and when you move out, or in case of your death, the property is sold and the loan is repaid. This option does not compromise the right you have to your property.

Home reversion plan

In this plan, you sell the whole or a part of your house to a home reversion company and in return you get a lump sum amount or regular income. Along with a regular income option, they also provide you with a lifetime lease that allows you to remain in your house. After your death or when you sell the property, the company gets the share of the property they have bought from you.

The home reversion company benefits from this deal when the price of the property you them increases throughout your lifetime.

How does equity release secure your retirement?

Either one of the equity release schemes mentioned above can enable retired or retiring people to free up the money which is tied in their property. Whether it is a lifetime mortgage or home reversion scheme, they provide you with the facility of keeping ownership of your home whilst benefiting from the rise in price of your house. There is no burden of paying the interest which can be very helpful especially if you do not have sufficient funds saved for retirement. They also provide you with the option of leaving a specific percentage of your estate as an inheritance.

A few things to keep in mind before entering into a plan

When you enter into an equity release in your own name

If you have a spouse, after your death your spouse or partner may be required to move out of the house. It is very important that you discuss these with your spouse/partner.

The loan will have direct effect on the inheritance you leave behind after your death

The beneficiaries from your property may not inherit anything if you opt for this plan. So it is advisable that you involve them and understand the process with them.

Make sure you have thought about moving house

If you wish to move home but you do not want to give up the plan then you have the option of transferring it your new house.