Q: Like many retired people, my wife and I are asset rich and cash poor. With people living longer, and often needing care, we wonder if we should consider releasing equity in our home, either to spend and enjoy now or to fund our care in the future. What are the options for equity release?
A: There are essentially two options if you want to remain in your home and release some of the equity. In both cases you need to understand the implications.
You could take a Lifetime Mortgage, whereby you borrow against the value of your home and the loan is then repaid from the sale of the home when you die or go into care. A Lifetime Mortgage provides money in one of three ways – lump sum, agreed monthly income for the remainder of your life or a flexible drawdown facility that allows you to borrow as and when you want up to a certain limit. Another option is a Home Reversion scheme where you sell the lender either part or all of your home and you then become a rent-paying tenant.
There are a number of drawbacks associated with both schemes, not least that by taking equity release you will be increasing your income and/or savings which in turn could have tax implications, affect your rights to any state benefits and what can be left to your beneficiaries. You should speak to your family and consider your options. There will be substantial setting up costs to take into consideration and if the mortgage interest rate or rent were to rise during your lifetime you may not have sufficient income to meet them and could lose your home. It is recommended you consider schemes which are members of the Equity Release Council. There may be alternative measures you can take to secure your future; your solicitor can advise you.