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The Equity Release Conundrum

Once retired, money can be an issue. You may have retired parents talking about equity release to unlock cash from their home. There are two types of equity release schemes and the following will help with family conversations. Have you discussed equity release with your parents?

Equity release

Unlocking cash

An effective way to unlock cash is for parents to downsize by selling their home and moving to a smaller property. This can create selling worries and additional costs from estate agents, removal firms and stamp duty. Another way is to keep thier home and use equity release either:

  1. With a lifetime mortgage that is secured on the home (must be over 55 years old). Choose a scheme that pays a lump sum, or pays smaller amounts, known as drawdown. After death or going into long-term care, the mortgage balance and interest is repaid from the sale of the home.
  2. With a home reversion plan it means selling all or a percentage of the home to a specialist firm, receiving a lump sum and/or regular payments (must be over 60 years old). The parents lose ownership of their property but are granted a rent-free lease until death or going into long-term care. The property is then sold with the amount owed paid to the plan provider and the balance goes back to the client or their estate.

The pros

  • Stay in their home and remove the aggro of downsizing.
  • Monthly outgoings will not increase, as the money unlocked by equity release or the interest is not paid until death or moving into long-term care.
  • Enjoy the money paying for one-off expenses or boosting pension income.
  • Effecient use of money via a drawdown service.

 The cons

  • Interest charges can mount up over time. The parents could end up owing the value of their home to the equity release company (never owe more home's value).
  • The family inheritance will shrink, as the home will go to repay the equity release provider after the parent’s death, or they move into care.
  • Miss out on house-price rises, if using a home reversion plan, as the home is effectively sold to the provider.

If talking with your parents, ensure that they get expert advice about the different schemes, as this is a complicated product. Use a firm who are members of the Equity Release Council, as these plans have important safeguards to protect customers and the property. Ultimatley some parents will need addtional funds in old age; unlocking money in their home is an option.

ChildMax pays your take home salary while you are on unpaid leave caring for a sick child. The NHS provides world class medical care, but parents are the care team; this can reduce earnings. ChildMax starts from £49.50.

Visit at www.insurewithmax.com  or call the UK call centre 0333 323 0098 for more information.

Important: With equity release, always obtain independent and professional advice for each individual situation.

Sources:

https://www.saga.co.uk/magazine/money/property/equity-release/the-pros-and-cons-of-equity-release

https://www.which.co.uk/money/pensions-and-retirement/youre-retired-working-on-benefits-equity-release/equity-release

 

Date: 10 May 2021 by max robinson