Pension: What does equity release mean and how could it give you more money?

Many pensioners have become concerned about their pension payments as the coronavirus pandemic impacts their finances. With the lockdown and the global infection, many companies have been forced to stop paying dividends prompting many to feel anxious about the health and future of their pensions. But what is an equity release and how could this provide you with more income?

What is equity release?

For those aged over 55 and struggling to find money at this moment, an equity release can provide a much-needed injection of cash.

An equity release is an option available to those who own their homes but wish for more money to make their retirement more comfortable.

Essentially, an equity release is a means by which you can unlock the value of your property and turn it into a cash lump sum, or in several smaller payment packages.


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What are the types of equity release?

There are two options you can take if you wish to arrange an equity release.

The first is a lifetime mortgage which means you take out a mortgage secured on your home provided it is your main residence while retaining ownership.

You can then choose to ring-fence some of the value of your property as an inheritance for your family.

You can opt to make repayments or let the interest roll-up.

The loan amount and any accrued interest is repaid when you die or when you move into long-term care.

The second method is to undertake a home reversion.

This option involves selling part or all of your home to a home reversion provider in return for a lump sum or regular payments.

You have the right to continue living in your home until you die, without paying rent, but you will need to agree to maintain and insure the property.

You are also able to ring-fence a percentage of your home for later use and possibly or inheritance.

The percentage which you retain will remain the same despite any changes in the value of your property, unless you decide to take further cash releases.

When your property is sold at the end of the plan, the sale proceeds are shared according to the remaining proportions of ownership.

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There are also alternative options available.

The numbers of mortgages available to older borrowers are increasing meaning that an equity release may not be the only option available for pensioners.

If you own your home outright you might find that taking out a mortgage on the property is a more cost-effective strategy.

Alternatively, if you have a mortgage, you might be able to release extra cash by remortgaging to release equity.

How much will an equity release cost you?

Equity releases are not an inexpensive option.

A lifetime mortgage can cost someone more than three times what you borrow after 20 years.

Whereas the home reversion scheme demands more than 70 percent of your home’s value for a 20 percent advance.

Average rates have fallen in recent years, but equity release is still very expensive compared with a conventional mortgage.

Is it possible to release equity during lockdown?

Yes, it is possible for you to release equity during the COVID-19 lockdown.

Lenders are open and are accepting applications.

Surveyors are also still valuing properties and estate agents have officially reopened in a bid to kickstart the housing market.

This means viewings can be conducted and removal firms and conveyances can restart operations.

Housing Secretary Robert Jenrick said the changes must be carried out under social distancing and safety rules.

Additionally, solicitors are still working which means you can process the relevant legal documents to release equity during lockdown.

Equity releases can, for the most part, be applied for and processed online.

Where a physical application form or paperwork is required many firms can arrange a courier to collect without any cost to you, being sure to avoid any physical contact and collecting from your doorstep without you having to open the door to them if required.

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