Should you equity release?
Many older people find themselves asset rich and cash poor as they’ve low incomes but valuable homes.
So my mailbag's swamped with people asking "what's the cheapest equity release deal?" as it's marketed as a way to spend a home's value while still living in it, either by taking a loan or selling part.
Yet while equity release rates don't sound much higher than ordinary mortgages, they often cost much more. No repayments are made till you die, so the interest compounds rapidly.
For example, borrow £20,000 aged 65 at 6.5% on a £120,000 home and live 25 years, and when you die £100,000 needs repaying. Though house price rises can offset this somewhat.
So you won't find 'best deals' on this site, as there's not one I'd be happy to suggest. But that doesn't mean don't ever do it. Here are the key points:
- It's less of an issue if you've no dependants. If you've no one to leave the property to, you lose nowt as the debt's repaid from your estate when you die.
- It can affect your benefits. Having cash rather than property can hit those eligible for some benefits, such as pension credit (see the State Pension Boosting guide).
- Explore downsizing instead. For many a cheaper alternative is to downsize - that is, sell and move to a smaller home.
So explore this, but think about doing it sooner rather than later as, anecdotally, while many still feel up to moving in their sixties, as they get older the disinclination to move sets in so it's much tougher.
- You typically need to be 60 to do it. Plus the younger you are, the less you can usually borrow.
- Ensure the company's a member of SHIP. This trade body's members all guarantee your estate will never owe more than your home is worth.
- Wait as long as you can. As a rule of thumb, at a rate of 7%, the amount you owe doubles every ten years. Therefore the longer you wait, and the less you borrow, the lower the impact on your estate.
- Don't think "I may as well do it in one go". For example, if you think you may need £40,000 from your house to last ten years, see if it's possible to get £20,000 now and the rest in five years.
It'll usually work out much cheaper, plus you may need the cash later for long term care.
- Speak to an independent mortgage broker. If you're seriously considering this, speak to an independent mortgage broker or financial advisor with an equity release speciality to find the best deal (see the Mortgage Broker Finding guide).
Nearing retirement? Don't lose out on £10,000s. Get your annuity wrong and you can lose thousands every year for the rest of your life by not maximising your pension pot on retirement (see the Free Printed Annuity Guide).
Further reading/Key links
Mortgages: Cheap Mortgage Finding, Mortgage Guide
Pensions and annuities: State Pension Boosting, Annuity Guide
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