The retirement age may rise: how this will affect millions of Ukrainians.

According to The Sun: Your home can become a source of funding in older age.

One way to access funds is through a lifetime mortgage (equity release) and remortgaging. Both options allow you to earn money using your property as collateral.

Both options do not require you to leave your home.

However, these funding methods have their own features and differences.

Next, we will explain how these instruments work and which one may suit you best.

What is equity release?

Equity release is available to homeowners aged 55 and over and comes in two main forms: lifetime mortgage and home reversion plan.

A lifetime mortgage is the most popular option that allows you to turn part of your home's value into cash while keeping ownership rights and the ability to live in it. This provides financial flexibility during important life moments.

The money you receive, along with the accrued interest, will only need to be repaid after your death or when you move into long-term care. There are plans that allow for voluntary payments within certain limits. Early repayment may incur penalties if the amount exceeds a specified threshold.

The home reversion plan allows the homeowner to sell part (or sometimes all) of their property to a provider at a lower market value in exchange for a lump sum or regular payments. The owner can live in the property for free until their death or until they move into permanent care.

It is recommended to choose an equity release provider that is a member of the Equity Release Council, which represents the industry.

Advantages and disadvantages of equity release

A lifetime mortgage may be a suitable option for some people but not for everyone. Therefore, it is important to consider the advantages and disadvantages. Here are the main ones:

Advantages

• Flexibility – You can choose when to make interest payments or take care of other financial obligations. You can also make voluntary payments to limit the accumulation of interest.
• Guarantee against negative equity – This standard, set by the Equity Release Council, guarantees that your property will not become a debt that exceeds its value after sale, providing financial security for your family.
• Home for life – Another standard set by the Equity Release Council allows you to remain in your home for life or until you move into long-term care. This provides certainty about your housing situation.

Risks of equity release

Equity release can be a good way to access money in retirement, but there are some risks to be aware of, according to Tara Evans from The Sun.

Interest rates on lifetime mortgages are around 5.5% and can exceed 8%. These rates may be higher than traditional mortgages, so it's worth considering whether to downsize.

You may end up with a debt that exceeds the amount borrowed, but it will never exceed the value of your home.

Using equity release to access money from your home will reduce the assets you pass on to loved ones after your death.

This is a long-term commitment, and a possible early repayment penalty could be as high as 25% if you choose to close the deal.

Do not forget that equity release may affect your benefits.

Always seek advice from a qualified equity release consultant.

Disadvantages

• High interest rates – Lifetime mortgages typically have higher interest rates than standard mortgages. This can become an expensive borrowing option, given the uncertain repayment term.
• Reduced value of your property – Equity release decreases the value of your property, which may impact long-term care funding. You will have less equity to pass on to your loved ones as an inheritance.
• Possible impact on benefit entitlements – The exact impact on your benefits depends on the type of benefits received and how money is managed.

What is remortgaging?

Remortgaging is the process of entering into a new agreement for your property. This can involve either renegotiating terms with your existing lender or moving your debt to a new one.

This process usually occurs when your previous agreement ends – for example, at the end of a fixed-rate term. If you begin the remortgaging process before the term ends, you may incur early repayment penalties.

Carefully consider your decision before securing your property, as your home may be repossessed if you do not meet your mortgage obligations.

Advantages and disadvantages of remortgaging

Advantages

• Better rate – Remortgaging may offer better interest rates than other forms of borrowing – such as personal loans or lifetime mortgages. This makes the mortgage more affordable. But remember your loan term: long-term funding can be more expensive.
• Understanding the total loan cost – In the case of a lifetime mortgage, the total cost of borrowing is not always clear. During remortgaging, you will know the exact cost of your loan and can better plan your inheritance.
• Ability to stay in the home – Remortgaging allows you to stay in your home if you keep up with your monthly payments.

Disadvantages

• Fees – If your mortgage is new, you may have to pay appraisal or notary fees, which can increase the total loan costs.
• Limited choice of lenders – As you age, your options may become limited, so approaching a broker may help find the best option for you.
• Risk of negative equity – If you borrow more money against your home, you may find yourself in a situation where the debt exceeds the value of the property.

How to know what suits you?

It is always helpful to consult with a qualified financial advisor to learn about the financial options available to you.

You need to discuss your equity release decision, as there may be other options that better suit your needs. Age Partnership can help you learn more and understand what fits your situation.

Initially, a free consultation is provided without obligation. Only if the deal is concluded will a fee of £1,995 be required. There may also be fees from other creditors and solicitors.

It is important to remember that equity release will require repayment of the existing mortgage, which will reduce the value of your property and impact long-term care funding.

Age Partnership is a trading name of Age Partnership Limited, which is authorized and regulated by the Financial Conduct Authority. FCA registration number 425432. The company is registered in England and Wales No. 5265969. VAT registration number 162 9355 92. Registered address: 2200 Century Way, Thorpe Park, Leeds, LS15 8ZB.