Financial freedom in your senior years is critical because it allows you to enjoy the beautiful things in life without worrying about your next paycheck.
Whether it’s getting your children set for adult life by helping them purchase their first house, or affording vacations, a steady income is a deal maker for many older adults.
If you’re wondering how you can afford financial freedom in your sunset years, “equity release” are the magic words you need to remember. But first, you need to calculate precisely how much financial freedom is in store for you using equity release calculator. A quick input of your age and home value should provide an estimate of how much income you can make against your house.
What is Equity Release?
Equity release is the practice of giving up some or all part (equity) of your home in exchange for regular income. The value of your home informs the amount of income that you. The higher your home ranks in terms of property value, the better your chances of qualifying for a bigger loan. You may receive this loan in a lump sum amount or as small amounts drawn out over time, also known as drawdowns.
Benefits of Equity Release
Financial freedom is the most significant benefit of equity release. Many seniors want money to afford several things, be they the much-needed home improvement projects, university fees for children and grandchildren, and vacations, to mention a few. Relying on government benefits and other irregular sources of income, such as part-time work may not always work for a senior who has numerous financial demands.
Imagine selling your home and still being able to live in it—this is perhaps every homeowner’s dream. With home reversion, which is a type of equity release arrangement, you can give up your home to someone else, get paid, and continue to live in your house. This arrangement opens up your financial possibilities and rids you of the obligations of owning a home while still allowing you to live rent-free.
Do you want to gift your heirs your estate while you’re still alive? You can achieve this using equity release. Borrow against your home and channel these funds to your heirs’ bank accounts. This way, they can celebrate this gift while you’re still alive to see it. What’s more—equity release can also lower the Inheritance Tax on your property. By selling some part of your property to someone else, you reduce your equity value, and if that falls below £325,000, there will be no tax charged on the same.
Drawbacks of Equity Release
One of the most significant disadvantages of equity release is that interest repayments can add up over time. As such, a homeowner may find himself or herself owing the lender the entire value of their home by the time the equity release plan comes to an end. Under the no-negative equity guarantee clause, there’s an assurance that your debt will never go beyond the value of your home. That doesn’t mean that you won’t lose your house entirely in the end as the accumulated debt may be at par with the house’s future value.
The second drawback of equity release is that your family ends up with a smaller inheritance since some part of your property will be used to repay your loan. This development may not sit well with some family members, especially if they were expecting a more significant inheritance.
With the home reversion plan where you sell all or part of your home to a third party, you may miss out on house-price increments. If the housing market in your region grows significantly over time, you’ll not be able to reap the benefits of such an environment. Such a scenario happens because you have primarily sold all or part of your home to someone else who will benefit from this house-price booms.
In conclusion, equity release is a good bet for seniors who want financial freedom but still wish to continue living in their homes. It’s crucial to choose a reputable lender to work with and ensure that you read between the lines, as the devil is often in the details.