Our home is, for most of us, the single most precious asset that we will ever own during our lifetime. Owning a home provides comfort and security, however once you reach retirement and you no longer have an income to maintain your home to the standard you would like, being a home owner can become a financial burden. So, what are the options available to a home owner looking to overcome financial constraints following retirement?
One option may be to consider releasing some of the equity tied up your home.
‘Equity’ is the share value of your home which is unaffected by debt, such as a mortgage. Therefore, if your home is valued at £250,000 and you no longer have a mortgage or any debt secured against your property, your equitable interest in your home will have a value of £250,000. It does not make sense to struggle to make ends meet whilst managing on a small pension when you own an asset of a value of a quarter of a million pounds.
An Equity Release Mortgage enables a home owner to “release” some of the equity they hold in their home which is paid either by receipt of a lump sum of money or regular monthly installments.
The difference between a mortgage taken out under the Equity Release scheme and a standard repayment mortgage is that, in general, the Lender under an Equity Release Mortgage does not become entitled to demand repayment of the lump sum or interest until you either pass away or until you are forced to sell your home because you have to go into care.
The downside to an Equity Mortgage is that when you pass away your beneficiaries will not be entitled to benefit from the full value of your home because the released equity plus accrued interest must to be repaid before your beneficiaries become entitled to the proceeds arising from a sale of your property.
The first step that anyone considering an Equity Release mortgage should take is to have a frank, open and honest discussion with their children and grandchildren, to let them know that as a result of the Equity Mortgage, there may not be a lot of money for them to share from the house sale once you have passed away.
Indeed, like all big decisions that you make in your life, it is always recommended that you obtain as much advice as you can from experienced legal and financial advisors who will explain the implications of the Equity Mortgage and will guide you through the whole process.
If you think an equity release scheme may be right for you, Wolferstans would be pleased to recommend a specialist Financial Adviser to you, who will discuss your options and help you to make the best decisions so that you can enjoy your retirement without financial stresses and worries.
Partner, Head of Residential Conveyancing Department