Lenders are now offering deals for equity release through lifetime mortgages, which allow homeowners to access cash.
Analysts have discovered that the average rates on lifetime mortgages have risen to 5.10%, which is an increase from the record low in July this year of 5.03%.
With interest rates increasing, equity release may become less attractive to homeowners. Here we discuss the alternatives to equity release.
What is equity release?
Equity release allows homeowners to unlock some of the value contained in their property, while they can remain living there. An alternative to downsizing, equity release allows people to pay for care in later life or fund any pension shortfall. There are two types of schemes: lifetime mortgages and home reversion.
The most common method is the lifetime mortgage, which allows homeowners to borrow a portion of the home’s value. As this is a loan, interest is charged which is totalled along with the amount borrowed, which means nothing is paid back until you sell your home or die. However, it is important to note that the debt will continue to grow over time, which can significantly erode the equity you hold.
Drawdown mortgages offer more flexibility, allowing you to withdraw small lump sums when you need them.
Home reversion schemes allow you to sell a percentage of your property below market value to a firm. This allows you to remain living at the home, but if you go into care or die, the firm will reclaim its share as repayment once your home is sold.
If you are considering equity release, ensure you speak to a financial adviser. To find out more about equity release Chippenham has companies such as https://chilvester.co.uk/equity-release/ who can help.
Equity release alternatives
If you want to unlock some value contained within your home, equity release is not the only option. You could release some value by remortgaging, downsizing to a smaller property or by taking out an unsecured personal loan. There is also an expanding range of RIO (Retirement Interest-Only) mortgages, which is a cross between equity release and an interest-only mortgage.
This product means you pay monthly interest for an undefined term, where the mortgage is repaid once you move into care or die. However, with this option you must have a reliable source of income in order to afford monthly payments.