One of the more popular options is a lifetime mortgage, a secured loan against your property which allows you to retain ownership and which gets repaid (along with any accrued interest) once the plan-holder either passes away or enters into long-term care.
“Open to those aged over 55, lifetime mortgages come in a variety of plans which allow you to access the equity tied up in your home in either a lump sum, a series of smaller amounts, or a combination of both,” explains Paul Carter, chief executive of Leeds-based mortgage lender Pure Retirement.
“Lifetime mortgages typically don’t require you to make repayments, though some plans now allow you to make optional monthly repayments to service the interest and capital – nonetheless, it’s worth considering that over the course of the loan the interest will ‘roll up’, and the total debt can quickly increase over time.”
While the total debt will increase over time, many products – especially those from Equity Release Council members – now include a ‘no negative equity guarantee’. This means that even if the amount left when your property is sold (and agents’ and solicitors’ fees have been paid) is not enough to repay the outstanding loan to your provider, neither you nor your estate will be liable to pay any more.
The amount that an individual can release is dependent on both your age and the value of your property. As a guide, the average borrower in their late 60s can usually borrow around 35 per cent of the total value of their home, and the percentage offered typically increases the older you are when you take out the plan.
Many lenders also offer either fixed interest rates or, if they are variable, rates which have an upper limit fixed over the loan’s duration.
“Overall, lifetime mortgages might seem like a good option if you want some extra money and don’t want to move house (though some plans will offer porting and downsizing options), but it’s worth bearing in mind that equity release can be more expensive in comparison to an ordinary mortgage,” adds Paul from Pure Retirement.
“It’s also worth considering any additional changes taking out equity release could make to existing arrangements, with the potential to lose means-tested benefits being key among them. It’s also important to consider involving your family throughout the process, as any equity taken out of the home will impact their inheritance later down the line.
“Finally, remember that equity release can only be taken out through an independent financial adviser, and that those associated costs will need to be taken into consideration in any calculations you make.”
For more information see Pure Retirement.