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Equity Release: help for elderly parents to combat cashflow needs this winter

Equity Release: help for elderly parents to combat cashflow needs this winter

‘Asset rich but cash poor’ is perhaps never truer than in the current economic uncertainty for many elderly people.  Living in the family home which has increased in value over decades, with the mortgage paid off, is a well-deserved position. But they may be concerned now about the heating bills, cost of living, and possibly long-term care costs.  All this when they also want to leave a legacy and inheritance for the family. Equity release may be an option providing help for elderly parents to combat cashflow needs this winter. 

What is Equity Release?

If your parents own their own home equity release provides either a tax-free cash lump sum or the opportunity to draw down smaller amounts of money against the value of the property.

Interest is charged on the money released. Historically when the house was finally sold, the sums released would be repaid from the sale proceeds, but there are more flexible options available today.

Equity release to fund winter fuel costs

You can estimate how much money your parents or relatives would be able to release using our free Equity Release Calculator which requires no personal details.

The right equity release plan

There are over 300 different equity release schemes from a range of providers in what is a highly regulated market. Equity release is an option for someone aged over 55 to benefit from the wealth they have built up in their property over their lifetime, and also support those around them with cash gifts for for example, school fees or a home deposit. 

There are two types of equity release schemes – or lifetime mortgages. The first, and more traditional scheme is a one-off cash lump sum also traditionally repaid when the house is finally sold with the interest “rolled up” over the lifetime of the loan. 

The second option enables borrowers to avoid the costs of a lump sum by releasing money from their property, but keeping some aside to be drawn down when needed – the benefit being interest is only paid on the money that is fully withdrawn. For example, someone may release £40,000 but only take £10,000 for now, leaving £30,000 for future use. Until the rest is drawn down, interest is only paid on the £10,000 that has been fully taken. 

There are two main options for repayment on both schemes:  the first as outlined above is the more traditional option whereby the interest rate is fixed for life, and the interest on the mortgage is rolled up for the lifetime of the plan, and repaid to the lender when the house is finally sold.  There are also easily understandable fixed early repayment charge schemes, which also make it simpler to work out the long-term costs.

Which type of equity release is best?

If your parents or relatives are looking for a cash sum to help them through these uncertain times, then the ability to drawdown only what they need might be their best option, along with early fixed repayment charges, so that they are able to work-out the long-term costs.

However if they’re looking for a larger sum of money to perhaps gift to a family member for a house purchase, or use themselves for care costs for example, then a lump-sum option would be worth considering. 

It is important to consult an expert when pursuing equity release options.

Considerations about equity release

Interest rates:  it is important to know that the interest rates on equity release mortgages are higher than for other mortgages or financial products so well worth shopping around.

Other options to fund needs:  equity release will not be the right solution for everyone;  it is important to take independent financial advice before taking the plunge.  You can find a local independent financial adviser through The Society of Later Life Advisers.