With interest rates set to rise, now could seem the perfect time to lock in a great deal on your Equity Release loan.
Most lenders will consider your application once you’re 55 years old.
But is that too soon? Will you benefit from waiting longer?
My youngest clients were 55 when they took out an Equity Release loan. My oldest so far was 94. Choosing the right time is as individual as you are – but here are some of the points you need to consider:
What do you plan to use the money for, and do you have any other options?
If you are at the younger end of the spectrum and have a mortgage to pay off, and no other way to pay it, then Equity Release could enable you to stay on in the home you love. It is likely (though not guaranteed) that your home’s value will rise in the future and you may be able to take out a further Equity Release loan with the same lender at some point in the future.
Can you afford to wait?
If you have income from other sources, there is an advantage in holding off before applying for your equity release loan. Interest rates can be lower for older applicants, and you can usually borrow a larger sum too. As a rule, lenders may offer a 55-year-old a loan equalling 25% of their home’s value. But this can rise to 55% once you’re in your 80s. Remember, if you are looking to borrow the maximum amount possible for your age and property value, you will always have to pay the higher rates of interest. To balance this, it is always prudent not to maximise your borrowing if your circumstances allow!
How well have you planned for the future?
As far as is practical, you will ideally have thought ahead about your financial needs for many years ahead – with Equity Release as one part of your holistic planning alongside any potential future earnings from savings, pensions, and investments.
How long will you carry on working?
If you’re self-employed, with a business that you may never need to retire from, you may be in the lucky position of being able to service the interest on your Equity Release loan.
This enables you to borrow a sum at age 55+ – perhaps for a special holiday, house renovations, or a child’s wedding – knowing that the outstanding sum will never grow bigger than the amount you have borrowed.
You will not be required to pay it back until you sell your house or, of course, when you die or have to go into long term care. But if you choose to do so within a certain timespan there may be a penalty fee to pay. The amount of the penalty, and the timespan within which it becomes payable, varies between lenders.
Is your family on board with the idea?
Your plans around Equity Release, and when to take it, should ideally be discussed with your family if they are in line to inherit your home when you die.
The loan will of course reduce the amount they eventually inherit – but it could save them money that would have to be paid in inheritance tax, which currently stands at 40% of an estate’s net assets (if these include the primary residence) over £500,000 for an individual or £1,000,000 for a couple.
Are you ready to discuss your options?
There is always a lot to consider when planning for Equity Release, and these are questions that your Equity Release adviser will help you think through. If you think Equity Release could help you balance your finances now or in the near future, do get in touch. I will be very happy to talk to you about your options.
