Wednesday, May 29, 2024

Is equity release preferable to downsizing?

For most UK homeowners, our home is our most precious asset.

It’s not surprising, however, that many of us look to our home equity to pay for our later life and retirement years.

Equity release advisor Jason Stubbs walks us through the question: is equity release better than downsizing? And tell us more about equity release by Nationwide reviews.

 What’s Equity Release & How Does it Work?

A sort of financing offered to elderly homeowners is equity release.

It enables customers to obtain a lump payment or drawdown facility that does not have to be repaid until their house is sold.

They may continue to live on their land without paying rent, and they are never obliged to sell.

The final selling revenues are utilised to pay off the loan.

Types of Equity Release

A lifetime mortgage & a home reversion scheme are the primary kinds of equity release.

 Lifetime Mortgage

You’ll get access to equity while maintaining complete control of your inheritance.

Home Reversion Scheme

In return for selling all or a portion of your estate to the lender, you will receive cash.

Who Is Nationwide Equity Release?

If you’re searching for anything other than a bank, you could wish to think about equity release through a building society.

Nationwide Building Society is currently one of the leading equity release providers in the UK, offering not-to-be-missed free online equity release events.

Downsize vs Equity Release – Which is Better?

Benefits of Downsizing

  • Downsizing is a debt-free means of accessing the cash in your property; you still own 100% of the property and may leave it as an inheritance to family members.
  • By downsizing to a smaller, more manageable home, you may discover that your household costs are reduced, resulting in a lower cost of living.
  • By considering your future needs while selecting a new house, you might choose a property that is more readily accessible and simpler to maintain.

Disadvantages of Downsizing

  • Moving is expensive, so the associated fees will drain the funds you hoped to save.
  • There may be additional charges for house modifications or purchasing new furniture.
  • In addition to relocating to a smaller house, downsizing sometimes entails relocating to a less expensive place, which entails abandoning the neighbourhood, friends, and neighbours you may have known for years.

Benefits of Equity Release

  • Releasing equity from your property provides you with a tax-free cash amount that you may spend in any way you see fit.
  • There are no monthly repayments to worry about with a lifetime mortgage unless you pick one of the equity release programmes that allows you to make regular payments against the interest; you continue to own 100% of your home and profit from any growth in house values.
  • If you do choose the drawdown facility on the lifetime mortgage option, you always access your funds as and when you need them.

Disadvantages of Equity Release

  • The overall interest charged on a lifetime mortgage is more than on other mortgages and accumulates rapidly, so it will influence any legacy you want to leave to your family; however, some programmes allow you to safeguard a part of your home worth.
  • If you choose to pay off your equity loan early, you may face significant payback penalties.
  • Because you will no longer own a portion or all of your home under a home reversion plan, you will not profit from any gain in house values based on the percentage of property sold.

How to Decide Between Equity Release and Downsizing

Downsizing is a debt-free method to get your hands on your hard-earned income, but it does include leaving what may be the family home.

On the other hand, Equity release allows you to stay where you are, but it will influence any inheritance you want to give to family members.

Downsizing or utilising equity release to gain access to the capital locked up in your property is a significant choice.

It will require serious study, and it will most likely affect your family, so involve them in your preparations as well.

Before making any important financial decisions, you should consult with a trained professional who will walk you through your alternatives in detail.

Final Thoughts

In general, downsizing is more financially favourable than releasing equity. When you downsize, you may negotiate a reasonable price for your present house and a fair price for the new home.

However, with equity release, the financial component of loan repayment becomes less tempting.

Whether you choose to downsize or release the equity in your existing home, it’s a huge choice, so talk to the professionals and consider all available options.

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