Equity release isn’t for everyone, but under certain circumstances it can be a useful way of raising funds for a person, couple or family who own their home, and is often used for a variety of purposes.
According to data collected by Premier Equity Release, the three most common uses for equity release are to repay unsecured debt (20%), pay for home improvements (17%) and to pay off an interest-only mortgage (16%). The next most popular uses are to help out family financially, pay for a holiday, and to fund a move to a more expensive house – all at 7% – while 6% of people use funds to boost existing savings, and the same percentage use equity release to buy a new car. Other uses include inheritance tax planning (4%), payment for care costs or private medical treatment (4%), buying a holiday home or investment property (3%) and buying out a relative or ex-spouse as part of a divorce (3%). Below, we explore the top five reasons in a little more detail.
- Repaying unsecured debt – Having a high level of unsecured debt, such as personal loans, credit cards and store cards, can be expensive as a result of both high interest rates and short repayment terms. While it’s not always the right move to repay unsecured debt by securing a loan against your property, in most cases it means you will be paying a lower rate of interest on your debt, and it also has the advantage of reducing your monthly expenditure, providing greater disposable income.
- Paying for home improvements – A number of people use equity release to fund a variety of home improvements. Whether it’s upgrading a kitchen or bathroom, a more extensive refurbishment, or even adding a conservatory, home improvement can have the added advantage of potentially increasing the value of your property. Some people also use equity release to adapt their homes to get around more easily, for example installing a stairlift.
- Paying off an interest-only mortgage – Many have found themselves in the position of having an existing interest-only mortgage reach the end of its term, but they are not in a position to fully repay the amount that they originally borrowed. For some people, equity release is an ideal solution to this scenario – the existing mortgage debt is cleared, and the homeowner can remain in the property without having to make further mortgage payments.
- Helping out family – It’s becoming ever more common for parents and grandparents to take out an equity release plan to help out younger family members. This can be for any number of reasons, for example to pay for education or to help pay for a wedding. Many also use equity release to help relatives build a deposit in order to get a foot on the property ladder.
- Paying for a holiday – We all deserve to enjoy our retirement, and for many people that involves planning a once-in-a-lifetime holiday, whether that’s jetting off to the other side of the world to visit relatives, or that long-talked-about Mediterranean cruise. Using equity release for a holiday can in some cases be preferable to drawing money from savings or other investments, which could in turn have an impact on income.
There is a huge range of different equity release products to choose from – most of which are ideal for all of the purposes outlined above – but make sure you know exactly what you are agreeing to when signing contracts with a lender.
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