Six equity release examples:
Now let’s look at six examples of equity release. We’ll focus on lifetime mortgages, as this is the most popular form of equity release. Of course, everyone’s circumstances are different so if you don’t see an example that looks like your situation, please contact us to arrange advice on the suitability of equity release for you.
Important: The following equity release example scenarios are for information only and do not constitute financial advice. Please make sure you receive advice from an equity release specialist before deciding whether this is a suitable form of financing for you. We can arrange an appointment with one of our selected advisers: simply call us on 0800 096 2215, or request a call back at a time that suits you.
Lump sum equity release examples
As the name suggests, lump sum lifetime mortgages give you a one-off opportunity to release tax-free cash from your property.
Example 1 – Clearing a mortgage and paying for home improvements
A recently retired couple want to stay in their home but still have a little mortgage to pay off, which is eating into their monthly income. Their home is also in need of some renovation work which they can’t afford from their savings. They especially want a new conservatory to give them more living space and a spacious place to entertain family and friends.
They talk to an equity release adviser, who goes through alternatives with them, including downsizing. However, the couple downsized to their small home just a few years ago and didn’t want to go any smaller, or to leave the area where they were very happy.
A lump sum lifetime mortgage lets them release enough cash to clear their existing mortgage and fund the home improvements including a high-quality conservatory. Without the burden of monthly mortgage payments, they will have more disposable income each month. They will also have extra living space that they can enjoy throughout their retirement.
Example 2 – Helping children get onto the property ladder
A couple who are financially secure but who don’t have substantial savings want to help their son and his wife get on the property ladder. With affordable rental properties increasingly harder to find, buying a home makes financial sense for the young family. The parents don’t wish to downsize and so release equity from their home to go towards a deposit on their son’s first home.
Their son understands that this will mean he will have less inheritance in the future, but he would rather get on the property ladder now instead of waiting. The son also knows that it is possible to pay off the lifetime mortgage early and hopes to do this either partially or in full once his financial position is more stable.
For his parents, they are simply happy to help their son and his wife finally buy their first home. Without equity release, they would have been unable to have helped without having to sell up and leave their home.
Drawdown equity release examples
A drawdown lifetime mortgage lets you take an initial lump sum, and then draw additional cash instalments over time.
Example 3 – Boosting retirement income for regular holidays
A couple find that their retirement income isn’t enough to give them the lifestyle they want. Like millions of other people, they didn’t build up big pension funds and so are mostly relying on the State Pension for income. This means they can no longer take the trips abroad that they once enjoyed.
They realise they are sitting on significant equity in their home and decide to access it while they can still enjoy it. Although they would like to leave something to their children, the family agrees that a better lifestyle now is more important.
To reduce the amount of interest building up on the equity release plan, they opt for a drawdown lifetime mortgage. They initially arrange a release of around £10,000 to meet some pressing financial needs and take their first cruise holiday since retiring.
They also set up a withdrawal facility of a further £60,000. They feel relieved that this facility is there to call on when needed on an ad-hoc basis. The drawdown plan means they will only start accruing interest on the money they release, as and when they take it. This will reduce the impact the plan will have on their children’s inheritance.
Example 4 – Funding long-term home improvements
A widow is determined to stay in her home of 50 years but knows that a number of home improvement projects will be needed in the next few years. First, the house needs a new roof as the old one has started to leak. She would also like a new and safer driveway and patio, a new bathroom and a kitchen makeover.
She has children who are financially stable but unable to help their mother financially. They aren’t concerned about maximising their inheritance and want their mum to access her property wealth while she can still enjoy it.
The family choose a drawdown lifetime mortgage to fund each home improvement project as and when needed. This will reduce the amount of interest that builds up on the loan. This also gives the woman some flexibility, as she can’t be certain of just how much will be needed, and on what schedule. With a drawdown plan, she can take what she needs, when she needs it.
Interest-only equity release examples
An interest-only lifetime mortgage gives you the opportunity to make voluntary monthly interest payments on the loan.
Example 5 – Buying a nice car and caravan
A couple in their early 70s are mortgage-free and have a comfortable monthly income from their pensions, but don’t have significant savings in the bank. They have always enjoyed caravanning, but their current car and caravan are old and starting to cost too much to maintain.
The couple have considered a bank loan but are struggling to borrow enough and afford the repayments. But with a lifetime mortgage, they won’t have to make any repayments on the loan itself. However, they can afford the interest repayments and so choose this option to reduce the overall cost of the loan – meaning they will be able to leave a bigger inheritance.
Example 6 – Clearing debt
A man in semi-retirement in his early 60s needs some money to help him clear some debt. He has looked into all the alternatives, including going into bankruptcy, but after getting professional advice decides that equity release is the best option for him.
As he would like to preserve as much of his property’s future value as possible to leave something to his children, he chooses an interest-only lifetime mortgage. He can afford to pay the interest in full each month to maintain a level balance on the outstanding loan.
He knows that his income is due to fall when he reaches retirement, so if that means he’ll no longer afford the interest repayments he can stop making them. At that point, the plan will switch to a standard lifetime mortgage and interest will start accruing from that point. This is unlike other loans such as a retirement interest only (RIO) mortgage, where your home could be repossessed if you stop making the interest payments.