As retirement approaches, homeowners often find themselves sitting on a valuable asset—their home. But what if you could tap into that wealth without selling your property? Two popular options for unlocking home equity are equity release and re-mortgaging. In this comprehensive guide, we’ll explore the pros and cons of Equity Release vs. Re-mortgaging, provide relevant statistics, and empowering you to make informed decisions.
Equity Release: Unlocking Home Wealth
What Is Equity Release?
- Equity release is a financial product designed for homeowners aged 55 and over.
- It allows you to release some of the equity (or wealth) tied up in your property without selling it.
- The two main types of equity release are lifetime mortgages and home reversion plans.
Lifetime Mortgages
Pros
- You can still get a loan in your latter years.
- The loan can be sizeable, up to 60% of your home’s current market value.
- There are no mandatory monthly repayments.
- You might only pay off the debt after you die.
- The loan can be used as you wish, such as for retirement planning.
- The “no negative equity” guarantee offers some financial security—you will never owe more than your home is worth when it is sold
Cons
- Some properties don’t qualify
- The debt can grow at a fast rate, making it expensive to repay.
- Exiting the loan early can be difficult due to early repayment charges.
- You won’t be able to pass on your home, and the inheritance you leave behind will be much less valuable.
Home Reversion Plans
- You sell part or all of your property to a home reversion provider at below-market value (usually between 30% and 60% of its true value).
- In return, you get a tax-free lump sum or regular payments.
- You continue living in your home rent-free until you die or move into long-term care.
- Upon sale, the reversion company receives its share of the proceeds.
Statistics on Lifetime Mortgages in the UK
- In 2021, there were 187,120 new mortgages to borrowers over 55 years of age, with total lending in the year of £28.1 billion.
- This represents an 11% increase in mortgage volumes compared with 2020.
- Lifetime mortgage volumes have remained broadly stable since the beginning of the Covid-19 pandemic.
Important to note
- A lifetime mortgage is a loan secured against your home and subject to compound interest, meaning the amount you owe can grow quickly
- Equity release will reduce the value of your estate
- Equity release may leave you with limited or no property equity remaining
- Equity release may affect your entitlement to means-tested benefits
- Equity release will reduce your financial options in the future
- Equity Release is not for everyone and is subject to personal circumstances. Sometimes this means not doing anything is the better way.
Re-mortgaging: Releasing Equity Through Borrowing
Re-mortgaging involves taking out a new mortgage on your home and negotiating a deal with your current mortgage provider.
Pros
- You can release equity from your home through further borrowing.
- You can borrow higher amounts than personal loans.
- It is like any other loan, so it’s tax-free.
Cons
- The debt must be repaid by the end of the mortgage term.
- Exiting the loan early can be difficult due to early repayment charges.
Conclusion Equity Release vs. Re-mortgaging
Both equity release and re-mortgaging offer ways to unlock your home’s value. As you consider your retirement options, reach out to Retirement Solutions for personalised advice. Remember, understanding the pros and cons empowers you to make informed decisions about your financial future.
Unlocking home equity through equity release or re-mortgaging can provide financial flexibility in retirement. Consider your options, seek independent professional advice, and make choices that align with your goals.
¹: Later Life Mortgage Lending Q4 2021 Update – UK Finance https://www.ukfinance
