Retirement should be a time for you to relax and enjoy the free time you have earned over the years. For some, however, this might seem to be a distant prospect. Let’s discuss being retired and paying off unsecured debts.
According to the Equity Release Council Q3, 2023 saw the first growth in the Equity release market for 12 months. With quarterly increase in both new customers (10%) and total lending (8%). ₁
Debt amongst the over-50s is in the region of 49% for 2023, which is an increase of 5% from 2022. On average the over 50s have £65,290 left to pay on their mortgage. Once you add the average unsecured amount of debt for over 50s 2, debt is a big concern for retirees.
How pension lump sums are spent
“You should be aware that by using equity release to pay off unsecured debts. You may be extending the terms of the debt, securing the debt against your home. And increasing the total amount to repay”.
Paying off unsecured debt with different sources
Whilst those in retirement will receive a state pension and may have invested in a personal pension. With living costs increasing, those who still have unsecured debts left to pay. May now find it more difficult to make ends meet, especially with the on-going increase in the cost of living.
There are ultimately a variety of ways in which funds released can be used to help clear existing debts. Whether it be to pay off credit card debt. Pay the remainder of a vehicle loan or helping family members pay off existing loans. It’s worth speaking to an independent equity release adviser to explore all the options. If you are thinking of consolidating existing borrowing. You should be aware that you may be extending the terms of the debt and increasing the total amount you repay. The actual rate and fees charged will depend upon your circumstances.
Enter the Lifetime Mortgage
Currently the most popular type of equity release product is known as a lifetime mortgage. This essentially is a loan secured against your property. This gives you access to the equity that has built up in your property over the years.
Equity release has become an increasingly popular solution, allowing eligible homeowners aged 55 and over to release some of the cash tied up in their property. The cash can be released in two ways. Firstly via a single lump sum, through a lumpsum lifetime mortgage. Great for those needing a large sum of money for a particular need.
Drawdown Lifetime Mortgage
Or via a drawdown lifetime mortgage, which enables eligible homeowners to release money in smaller amounts. As and when needed, via an agreed drawdown facility.
A lifetime mortgage requires no monthly repayments, freeing up your day-to-day cash. There is also no tax to pay on money borrowed and as of the 28th of March 2022. The Equity Release Council has brought in rules. Which mean all customers are guaranteed the right to make penalty-free partial repayments on their loans as and when they please.
Case Study of Carole and Chris Brooker
Retirement Solution customers Carole and Chris Brooker made the decision to release some of the tax-free cash tied up in their home to pay off existing unsecured debts. Here’s their story.
“We recently found ourselves needing to raise additional funds to pay off some debts which would increase our monthly disposable income and give us an ’emergency fund’ thus making life easier without having to sell the house which we have lived in for 30+ years as we didn’t want to downsize. It was a huge relief when I called Retirement Solutions who arranged for their adviser Steve Baldwin to come to see us.
In our first appointment, Steve listened very sympathetically to our situation and then explained what options may be possible. He obtained up-to-date figures for our plan and then we were able to discuss things in more detail. He went away promising to check if there were any options open to us.
Our second appointment, Steve explained that he had found several options which would be suitable for us. He recommended one which was at a lower interest rate and gave us a lump sum that would enable us to clear some debt and free up some disposable income. He highlighted the risks and benefits of entering this new plan clearly. He continued to liaise with us during the progress of the transaction and we have been impressed by his level of honesty, care, and attention.
Finding out there was an option for us to be able to stay in our family home with some extra cash to help us deal with any unexpected expenses has been such a relief. We are both very grateful to Steve and Retirement Solutions and wouldn’t hesitate to recommend them.”
If you are considering choosing equity release to pay off unsecured debts. As well as to help boost your finances in retirement. We recommend speaking with an independent equity release adviser.
What fund raising options do you have?
Equity release isn’t the right choice for everyone. And there may be other options to help you pay off unsecured debt during or approaching retirement.
Downsizing – When done right, downsizing can be a great decision for those approaching or in retirement. Downsizing involves homeowners selling their current property and moving into a property with a lower value. Essentially pocketing the difference once all the associated fees and costs have been paid. This leaves homeowners with some extra cash. To boost their finances during retirement and may allow for more organisation and less clutter in their homes. Of course, there are some factors you should consider if you are thinking about downsizing.
Cost cutting – Another way to help save money in retirement is to try and cut costs in certain areas. Some of the ways you can cut costs in retirement might be by switching unused appliances and electrical items off around the house. Reducing branded product purchases, applying for a free bus pass. And selling unused collectibles and furniture. It’s also always worth checking to see what benefits you might be entitled to; you can check this out on the turn2us website. https://benefits-calculator.turn2us.org.uk/
Working – It may not be the answer that most want to hear but continuing to work or returning to work is a solution to help pay off unsecured debt as well as boost your finances in retirement. There may be a few costs associated however with working still, such as the cost of transportation.
Find out more...
Independent Later Life Planning advice
Retirement Solutions independent advisers will take the time to understand your circumstances before searching the whole of the market help you find the right solutions that suit you and your personal circumstances. If a particular solution isn’t right for you, our independent advisers will let you know. To book an appointment you can request a call back at a time that best suits you or you can give us a call on 0800 043 0725.
Think carefully before securing other debts against your home. If you are thinking of consolidating existing borrowing, you should be aware you may be extending the terms of the debt and increasing the total amount you repay. To understand the features of a lifetime mortgage, ask for a personalised illustration.
