How do I top up my pension income with equity release?
Are you finding that your pension falls short of what you need to live comfortably in retirement?
Maybe you were hoping to travel more, renovate your home, or even make a big purchase such as a motorhome, but other costs are keeping you from achieving these things.
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Andrew Morris, senior equity release advisor at Age Partnership, helps explain how equity release could help you top up your pension income with equity release.
What is equity release?
Put simply, equity release allows homeowners aged 55 and over to access some of the wealth that has accumulated in their homes – known as their equity – without having to move home.
The first thing to note is that there are two main types of plans, a lifetime mortgage and a home reversion plan.
A lifetime mortgage is the most popular plan as it allows you to continue owning 100% of your home, as the loan is secured against your property.
Any money you release, plus accrued interest, will be repaid when you pass away or move into long-term care.
With a home reversion plan you sell part of your home to the lender, but you can continue to live in it rent-free until you pass away or move into long-term care.
Once you’ve decided if it could be right for you, it’s good to talk about equity release with your family.
This is because both plan types will reduce the value of your estate and your inheritance.
It’s also worth considering that equity release will impact the ability to fund any long-term care with the proceeds from a house sale, should you need it in the future.
Why consider equity release for topping up pension income?
Equity release has many product flexibilities and there are different ways to access the money depending on what you need it for.
If you’re considering using it to top up pension income as we’re discussing here, taking the money you release in smaller, regular amounts over time could be right for you.
One of the benefits of this is that you only pay interest on the money when you take it, so it avoids unnecessary interest rolling up if you take the money as a lump sum.
Taking the money as a lump sum is best if you know you require a big purchase such as a caravan, holiday or gift to loved ones.
My clients have lots of different reasons and needs for releasing equity, and you must discuss what you want the money for with your adviser so they can help you access the right amount for your individual needs, in the right way.
Reduce your monthly committed expenses
Calculate how much you could unlock
Not only could equity release allow you to top up your monthly income, but it could also help you reduce your committed monthly expenses.
This is because it is a condition of equity release that you must first repay any existing mortgage with the money you release.
Once any mortgage has been repaid, you no longer have the commitment to make monthly repayments as regular repayments aren’t required with equity release.
Dangers of equity release
EQUITY release can be a good way to unlock cash in retirement – but there are some dangers to consider, according to The Sun’s Tara Evans.
Interest rates on lifetime mortgages are around 5.5%, with some topping 8%. This means they can be more expensive than a traditional mortgage and you should always consider downsizing first.
You could end up owing more than you borrowed, although it will never be more than the value of your home.
Using equity release to take cash from your home will reduce the assets you have to pass on to loved ones when you die.
It is a long-term commitment and you may be charged an early redemption fee that can be as high as 25% if you want to pay it off.
Be aware that equity release could affect or stop your benefits.
Always seek advice from a qualified equity release adviser.
You can stay in the home you love
One of the main benefits of equity release for many people is that it allows you to continue living in the home you love, without the need to downsize or move home.
It’s important to explore whether moving to a smaller property could be right for you before releasing equity, and I will always discuss alternatives to raise additional income with my clients, such as taking a lodger or asking family for financial assistance.
You might be concerned about what impact equity release would have on your inheritance.
It’s good to know there are plans that allow you to safeguard a percentage of your property’s value so that you can pass this on to loved ones.
Additionally, all plans that meet the Equity Release Council’s standards come with a no negative equity guarantee, which means that your estate will never owe more than your property is worth when it is sold.
What steps are involved?
The first step is to speak to an advisor.
Advice is required before proceeding with equity release, this is where an advisor such as myself will be able to talk you through all the different features so you fully understand what your options are, and which plan could be right to help you top up your pension income.
Through Age Partnership, you can have an initial, free, no-obligation consultation to discuss your needs and answer any questions.
Only if your case is completed would an advice fee of £1,895 be payable. Other lender and solicitor fees may apply.
The next step is to get a personalised recommendation document, which your advisor will put together, detailing what you have discussed.
If you decide to proceed, your advisor will help take you through the process, and once complete you will receive the funds straight into your bank account.
Age Partnership is a trading name of Age Partnership Limited, which is authorised and regulated by the Financial Conduct Authority. FCA registered number 425432. Company registered in England and Wales No. 5265969. VAT registration number 162 9355 92. Registered address, 2200 Century Way, Thorpe Park, Leeds, LS15 8ZB.