an equitable solution?
Many people are considering letting their homes take care of them in retirement – here’s what you need to know about equity release
older people often complain their pensions won’t keep them in the lifestyle they want. The new state pension is just £164.35 a week for a man born on or after 6 April 1951 or a woman born on or after 6 April 1953.
That won’t go very far. And those in this age group have almost certainly missed any chance to build a pension pot.
But if you are over 65, the chances are high you own your home outright – around three out of four own property mortgage-free.
This will be probably be worth a six figure sum – in some areas possibly more.
What if you could borrow some of the money tied up in your home to fund your living expenses? It’s an idea that’s advertised a lot on daytime TV.
According to insurer Royal London, some see their growth in housing wealth making up for low pensions.
The idea is called “equity release” and it comes with both advantages and drawbacks.
Step one is to check there is no outstanding loan on your home. If you pass that test, then get your property valued – most equity release deals lend up to half that amount.
A specialist firm will then lend up to that sum. You generally have to be aged 55 or older.
The attraction is the cash released is all yours. You can spend it how you want including on home essentials or save it and take a set amount every month – or a mix of the two.
You don’t have to worry about interest until you (and your partner if you have one) die or go into a care home.
But although you are not paying interest, it is mounting up all the time, compounded so you pay interest on unpaid interest. Rates are usually fixed so they can’t go up or down.
Interest levels on equity release deals are higher than on standard mortgages. Expect to pay at least 3.5% – and possibly up to 6%. Even at the lower end, what you owe can mount up quickly.
The loan and interest are repaid when your property is sold. And if you live for 20 or 30 years, the debt could exceed the property’s value.