Taking out equity release mortgage is never an easy choice for anyone, especially if you are facing financial difficulties in retirement. However, this decision also comes with many benefits though affecting the amount of inheritance you leave behind for your heirs.
An equity release mortgage requires careful planning and discussion with your independent financial advisor. You may also wish to speak with family once you have had a discussion with your adviser given that they too are involved. On the other hand, it may be the best option to give you a comfortable post retirement life.
The first benefit is that it offers an additional source of income, since it comes with a tax free lump sum from the release of equity from your property’s value. You determine the amount of money you need to release depending on your needs as well as a percentage of the property value. Upon receipt of the tax free cash, you can then use it for various expenditures such as home improvements that will help make your retirement more enjoyable.
For instance, you can use the equity release mortgage money to settle outstanding debt, help your family members with their issues, maintain a certain lifestyle, and even use it to pay off a different mortgage. Ideally, the money should help you financially during financial difficulties, and having the option of accessing a lump sum amount is definitely something for one to celebrate.
Taking out this money can hinder your family after the fact. This is why it is important to think carefully about how to access the funds. If you want to leave an inheritance there are products that can guarantee even a moderate lump sum left for beneficiaries versus those that cannot guarantee even a little money left. Be vigilant as you study the different products to ensure you get the most out of the benefits.
The other benefit that comes with equity release is that you do not need to make monthly payments after getting the tax free lump sum. It reduces the responsibility that comes with paying off a loan on a monthly basis. If you opt for a lifetime mortgage where you do not need any repayments, then the first loan plus all accrued interest is paid off when the homeowner either goes into long-term care or passes on.
The other advantage is that it allows you to continue living in your home, and you do not have to concern yourself with relocating or finding another home. Ideally, it allows you to maintain your lifestyle and even improve it by using the lump sum to improve the home.
On the other hand, there are a few things that you must consider when taking out an equity release mortgage. First, it will affect your inheritance, and if you have heirs, you need to consider that factor. They will receive a lower inheritance than prior to the equity release scheme being taken out. Additionally, if applicable it could affect certain means tested benefits and before taking a large cash sum should be verified with your equity release adviser.
A major concern with equity release mortgage products is how much you can lose for your family. You have to decide if the house is as important as your family getting inheritance. First, you could downsize and not take out a mortgage that would hinder other benefits. Second, you could take out a home reversion plan that sells the home, but gives your family cash to live on after you are gone. You sell the home in part or in full so there is no mortgage attached to it.
When you have decided that a lifetime mortgage is the best way for you to get what you need in retirement, monetarily speaking of course, then you have to look at negative equity versus potential inheritance.
The market changes, thus housing prices can fall or increase over time. If you have a mortgage you pay nothing on including no money towards interest this could create negative equity. There is a clause so you will not burden your family beyond what a house sale can cover of the mortgage and interest, but it might mean losing the inheritance. The only way to guarantee even a small portion is the interest only mortgage where you make a payment on the equity release mortgage each month. This repayment is actually interest only and not any money towards the principle balance. Since the amount you took remains fixed, there is inheritance left as long as you do not take out full equity.