What are the alternatives to Equity Release?
Contact Your Lender
If your mortgage term is coming to an end or you are struggling with your monthly repayments you should contact your existing lender at the first opportunity. Many lenders will agree a “period of grace” to repay a mortgage at the end of it’s term and also will look to help borrowers who are struggling to meet their repayments.
Simply completing an “income and expenditure” sheet will show you what you spend (and where) and highlight whether there are any areas you can cut back on to make ends meet.
“Up to 1.3 million borrowers with interest-only loans face shortfalls averaging around £72,000, with customers too optimistic about their ability to pay”
Also if you are intending to repay your mortgage from an investment (endowment, ISA or pension) contact the investment or life assurance company to get a projection of the maturity proceeds to establish if there will be a shortfall and if so how much.
Look at your Pensions
If you are nearing retirement contact not only the Department of Works and Pensions but both your existing employer and all previous employers to establish what pension benefits you are entitled to in retirement. With the recent changes in pension legislation it is also important to seek advice on how to receive these benefits as many types of pensions now allow you to release benefits as a “lump sum” rather than “income”.
“According to the DWP some 30% of people in retirement are not receiving all the benefits they are entitle to”.
Once you have established what your income will be in retirement contact the Department of Work and Pensions and get your benefits reviewed. If you have trouble completing forms there are many UK organisations that can help with this.
Downsizing – Be realistic
“Nearly two in five over 55s plan to sell their houses and expect to raise on average around £85,300, according to a report by a major insurance company.”
As much as you would like to stay in your home can you afford to do so for the long term? The answer may well be “Yes” but if it is “No” is there any great financial advantage in downsizing? Think carefully before putting your home on the market in hope of clearing, or reducing your mortgage. Moving home is expensive and many people release the profit (or equity) in their home only to spend it making their new house their home. In some cases the amounts of cash realised can be lower than expected and the cost of moving house should not be underestimated.
Involve the Family
Releasing the equity in your home can affect your family’s lives too. Most obviously, it would reduce the amount of inheritance they might receive. But you may also find this provides a welcome opportunity for you to talk about your plans for retirement – giving your family a better understanding of your plans for the future, and how this could affect them.
You may also discover that your family is very supportive. Family members frequently react very positively to the idea of equity release, as they may have been worried that their parents were limiting their lifestyle unnecessarily. Take time to consider all the options and talk through everything in detail with your family.
Before taking out any Equity Release plan you should consider and discount all of the alternatives to Equity Release. Page 3 of the guide to Equity Release Schemes also outlines the alternatives that you should consider.