Equity Release Versus Downsizing: What’s Right For You

Faced with retirement on a poorly performing pension, lots of us are looking for ways to access extra cash in our golden years. The common phrase describing retirees is “asset rich but cash poor”. This describes the fact that your bank balance might be dwindling but you have wealth built up in your home.

If you have spent years making monthly mortgage payments, your property might hold the key to a more affluent retirement. Your house is probably your biggest asset and there are two ways you can unlock its potential – downsizing and equity release.

Downsizing involves selling your home and relocating to a small, cheaper option. Equity release is a process where you take from your home and it is repaid when your home is sold – usually upon your death.

Any financial decision should be considered carefully, so don’t rush it and speak to an expert. Take time to think about the pros and cons, some of which we’ve explored below.

Moving house

The obvious benefit of equity release over downsizing is that you don’t have to leave your home. When you have reached retirement and are happy where you are, it can be a major upheaval to leave the proximity of friends and neighbours you’ve got to know over the years. Not to mention the fact that it can take years to settle into a new property and make it your own.

Lots of retirees shy away from the prospect of downsizing because they have family they need to accommodate when they come to visit. A smaller house with no extra rooms for the kids and grandkids to stay in can put a stop to those happy family gatherings you’d imagined.

On top of that, there’s the time and stress it could take to sell a house; not to mention the energy needed, which is a key consideration especially if you are in poor health.

On the other hand, equity release allows you to stay in your own home for as long as you wish – either until you pass away or move into a long-term care home. You take money in one of two ways, either as a loan through a lifetime mortgage, or by selling a proportion of your property with a home reversion scheme. Both plans allow you to withdraw a lump sum of cash, a monthly income, or a combination of the two.

Inheritance

Inheritance is often something of concern for retirees considering equity release; they want to leave their loved ones something when they are gone. They are worried interest will eat up the entire property’s worth so there is nothing left to give when it comes to be sold.

However, with some methods of equity release it is possible to ensure there is still an inheritance pot available. Home reversion schemes, for example, enable you to sell percentages of your home, so you retain the ownership of a portion of the property and the money is passed on to your beneficiaries when you die.

Your property could hold the key to a happy and prosperous retirement, helping you to fund anything from a higher monthly income or the holiday of a lifetime to necessary at-home care. Before you embark on any scheme, speak to an expert to find out whether it is the most suitable solution for your circumstances.