A smarter way to make home pay
CQan you spend your home? Is your house your only real asset? If so, don’t leave it too late to sell it! Many in their 60s are asset rich and cash poor, living in large homes with kids who’ve long since left the nest. Plans to downsize, “in a few years”, are often put off so selling up is always “still a few years away” until finally it ends up as “we’re too old to move”.
So plan for your own hesitation – if you’re going to sell, it’s usually far better to bite the bullet early. If not, and you need cash, the main option is an equity release – a way to spend your home’s value while still living there. My mailbag’s full of questions on it like this recent one from Trevor and Bridie Williams: What are the pros and cons of equity release. We are both 77 and our house is valued at £170,000 mortgage free? Martin says: Equity release is usually done via a loan, repaid from your home’s value once you die. So if you get one and you’ve dependants, a natural consequence is there’s less to leave them after you’ve gone. Then again, it is your money, so prioritise your own standard of living first.
The typical rate of an equity release loan is 5.5%, that’s about one percentage point higher than ordinary standard variable rate mortgages – yet far more expensive than new mortgage deals. But the real reason they are costly is that you’re not (usually) making monthly repayments to reduce the debt, so the interest compounds and compounds.
For example borrow £20,000 aged 65 at 5.5% on a £120,000 home and live 25 years, and when you die a whopping £76,000 needs repaying – though some of this may be offset by house price rises. (PS quick maths trick for you. Divide 72 by the interest rate, eg at 6%, you get 12. This is roughly how many years the amount you owe will take to double.) So equity release isn’t that cheap, and there are a few more key pointers too… It’s less of an issue if you’ve no dependants. The debt’s repaid from your estate when you die, if you’ve no one you want to leave it to, that’s easier.
It can affect your benefits. Having cash rather than a property can hit those eligible for pension credit and other things.
You typically have to be at least 55. And, the younger you are, the less you can usually borrow.
Ensure the company’s a member of the equityreleasecouncil.com . This should help guarantee at worst your estate will never owe more than your home is worth.
Wait as long as you can. The longer you wait, and the less you borrow, the less the impact on your estate.
Don’t think “I may as well do it in one go”. If you think you may need £40,000 to cover 10 years, see if it’s possible to get £20,000 now and the rest in five years – it should be cheaper.
If you’re considering this, speak to a mortgage broker or financial adviser with an equity release speciality. See mse.me/mortgagebroker guide. Martin says: Glad you watched (it’s on ITV on Mondays at 8pm by the way). The number is for the Telephone Preference Service. Text ‘TPS’ and your email address (to verify your identity) to 85095.
The text should be free, though some might get an automated message saying “you’ll be charged up to 15p” – ignore it, it’s a standard message and (hopefully) won’t apply here. You can do the same from your landline by calling 0345 070 0707. After 30 days it stops legit companies from within the UK and EU from calling you. Though it won’t stop criminals or spammers from outside the EU, nor if you by mistake wrongly tick one of those often confusing marketing ‘opt-in/out’ boxes while signing up for something. BT has a new system called ‘Call Protect’ too which is free for its landline customers which may also help.
For much more help on this, and to stop junk mail, door knockers, and unwanted texts see my guide at mse.me/ stopspam. EmailSundayMirror@ moneysavingexpert. com or tweet @martinslewis with SunMirror