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Raising finances in later life can seem difficult if you approach mainstream lenders and try to remortgage in retirement.
Equity release mortgages are one of the common options, but they aren't suitable for everyone.
There are also secured and unsecured loans and other strategies which may help achieve the financing you need without accepting that the lender will sell your property once you enter care or pass away.
Here we explore some of the popular alternatives to equity release to identify some of the solutions that may be appropriate for you.
Equity release products free up financing held in your property and are usually available to retirees or those over 55.
This type of borrowing includes lifetime mortgages, which account for nearly all of the equity release products on the market.
However, you can apply for home reversion plans - which are slightly controversial.
The idea is that equity release allows you to borrow significant amounts without making any repayments.
When you die or move into care, the lender sells the property and settles the final balance with any excess proceeds passed onto your estate.
There are several ways to release equity from your home without applying for a lifetime mortgage or comparable equity release product.
It's hard to give guidance without knowing your circumstances and how much you wish to borrow because the optimal product will vary.
You'll need to consider the amount of equity you own, the value of your home, any existing mortgage debt, your age and your health.
The Pros and Cons of Downsizing Instead of Using Equity Release Schemes
The option of downsizing means selling your current property, buying somewhere smaller or lower-cost, and using some of the proceeds to repay your debts.
If you're keen to relocate, you may find that a smaller property is cheaper to finance and easier to maintain in retirement.
It isn't always an easy decision, though.
Equity release means you retain the right to live in your home for life. In contrast, downsizing carries all the stress of relocating and legal fees associated with selling one property and buying another.
However, it's one way to release equity from your home, finance your retirement, reduce your outgoings, and avoid paying interest charges on a lifetime mortgage.
You can still move home or downsize if you have already released equity from your property through a lifetime mortgage.
Any equity release product from a lender registered with the Equity Release Council must have a clause allowing you to port your mortgage.
It must also have downsizing protection, which means you have the right to downsize and repay the equity release loan with some of the sale proceeds, with no early repayment charge, usually from five years onwards.
Borrowers may switch between equity release lenders, which works similarly to changing your mortgage provider.
There may be scenarios where a normal remortgage with a larger loan value than your current product is suitable to increase your financing by using your equity.
However, you would be committing to long-term repayments for a fairly large sum and more than the capital borrowed.
Few lenders will consider a sizable remortgage for an older applicant, so a lot depends on the circumstances and how you anticipate repaying the loan.
Age limits vary considerably. Barclays, for example, won't agree to a mortgage where the borrower would be 70 at the term-end.
Other lenders will facilitate a remortgage where you might be 80 or 85 at the end of the term, so a whole-of-market broker can advise if this is a route you'd like to take.
An interest-only remortgage may be more accessible (because the monthly repayments will be much lower).
You'll need to have a clear credit history and a good level of equity to explore this option as an alternative to equity release.
A retirement interest-only mortgage is an equity release loan, similar to any other lifetime mortgage, but with the ability to make repayments towards the interest.
If the product requires monthly instalments, you will need to pass an affordability assessment so the lender can verify that you have the means to keep up with the interest costs.
You still release equity, but the difference is that the balance can't accumulate further because you aren't allowing the interest to roll up into the loan.
The advantage is knowing what proportion of your property the lender is entitled to when it is sold - and what amount you can leave to your beneficiaries.
Instead of downsizing, some property owners who need to raise financing rent out a room or part of their property.
You can also consider short-term lets through Airbnb or a similar platform if you have more than one home or own a holiday residence.
Renting out a room comes with its own challenges but can raise sufficient finance to pay for renovation works or simply supplement your pension income.
Reverse mortgages mean the same as a lifetime mortgage - it's simply a different term used widely in lending markets in Australia, Canada and the US.
A reverse mortgage is an equity release product that involves borrowing a proportion of your property value secured against the home.
You don't normally make any repayments, and instead, the interest is rolled up and added to the original capital balance.
There isn't a fixed term because the loan continues until you pass away or go into long-term care - or the second partner dies or enters care if you apply through a joint application.
Any balance of the sale proceeds passes to your estate.
Personal loans are a possible alternative to equity release as an unsecured debt.
As you get older, you might find it harder to achieve approval for a personal loan, but a lot depends on your income, credit rating and circumstances.
One of the positives of a personal loan is that it isn't secured against your property.
However, you'd normally be able to borrow much less, and the interest rates will be higher than a mortgage.
Credit cards are an unsecured debt that is rarely advisable since the costs will be considerably higher.
However, if you need to borrow a small amount and can easily cover the repayments, it might be faster to apply for a short-term credit card facility.
The protections may be attractive, such as buyer protection - a key reason most people book flights or holidays on a credit card.
The pitfall is that if you only make the minimum repayments, it might take a long time to clear the balance, and the interest will quickly add up.
There are multiple ways to raise financing, release equity or secure a loan to help you achieve your financial goals - but knowing which option is most suitable and cost-effective isn't always easy.
If you'd like any assistance contrasting the alternatives to equity release we've listed here, please get in touch with Revolution Finance Brokers for guidance from the independent, whole-of-market professionals.
A secured loan is also called a second charge mortgage and is a way to take on a second mortgage secured against a property when you already have an outstanding mortgage in place.
It's a possible alternative to equity release and is a way to borrow funds based on the equity you hold in your property - above and beyond any existing debts.
Lenders usually give fairly attractive interest rates because the security is worth far more than the amount borrowed.
Hence, the costs are lower than an unsecured loan or a credit card.
The challenge is that you will need to assess whether your equity is sufficient, prove that you can afford both sets of repayments, and possibly cover the cost of a new valuation.
Potentially, yes, if you have a rental property or another asset, you might use this to raise funds, perhaps by:
These are possible solutions but may not always be applicable. The right option will depend on the type of investment property you have, what it is worth, and how much you would like to borrow.
As an interest-only equity release product, a retirement mortgage lender would need to conduct an affordability assessment to verify that you have the income to cover the regular interest instalments.
The other qualification criteria are the same as any other equity release loan, depending on the lender's policies and risk appetite.
No, equity release is sometimes confused with a type of remortgage, but these are two very different products with different eligibility criteria and uses.
Remortgaging means, you take out a new mortgage product, usually with a better interest rate, and repay the old mortgage with your new financing.
You can use a remortgage as a partial equity release exercise.
For example, if you need to remortgage to pay back a £50,000 balance, you could borrow £75,000 and keep the £25,000 for your own use.
The difficulty in retirement is that you would have to prove you have the income to make the repayments on the new mortgage product, and many lenders will not consider applicants past a certain age.
So much depends on whether you're willing to live elsewhere, what your property is worth, and your other circumstances.
For some retirees, downsizing isn't possible because there aren't many properties available nearby, or they cannot move because of commitments as a carer or proximity to a medical facility.
In others, it might be beneficial to sell your property and buy somewhere smaller, using the difference in pricing to fund your retirement.
The positive is that you would be in a strong negotiating position as a cash buyer, but the negative is that you would need to cover legal fees, estate agent charges and the relocation costs.
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The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature. We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.
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