Used properly, an equity release mortgage (ERM) can be fantastic for people who own property and are on a limited income.
With an ERM, you can borrow against the value of your property with no need to make repayments. The interest is added to the mortgage balance and the mortgage is repaid when you vacate the property and the home is sold.
A lifetime guarantee means you can stay in your home for the rest of your life, and a no negative equity guarantee stops the mortgage ever being more than the value of your home. In simple terms, you still own your home and no one can kick you out.
We can discuss whether or not an equity release mortgage is right for you as part of our retirement plan service.
Features and benefits
- The amount you can borrow depends on your age (at 67 you can borrow up to 22% of the property value, at 80 35%, and at 90+ 45%).
- The mortgage has a no-negative equity guarantee so that the loan balance can never exceed the value of the property.
- Establishment fees range from $695 through to $895. There is an additional charge for a property valuation (usually about $500) that can be added to the loan. It is also compulsory to get independent legal advice, which will set you back at least $500. So total up front costs are close to $2,000.
- Fixed and floating rates are available, although we don’t recommend a fixed rate for life because of the potential cost to you if you repay the loan early.
Using equity as part of your retirement plan
Planning for your retirement can be tricky – it’s very difficult knowing how much you have to spend every year so that your savings last your whole life. Equity release can act as the insurance buffer for your retirement savings.
Knowing that you can access equity from your home (and that property prices appreciate) you can budget to spend your other investments in the short term. You’ll have more cash to have more fun, and then, if you live longer than you expect (always good news), you can fall back on the equity in your home.
Something else to consider if you want to grow your savings but still need regular access to your money could be Squirrel Money. Squirrel Money Investors get returns of around 8%p.a. which is paid out monthly instead of at the end of the term. There are 2, 3 and 5 year term options and your money is protected by a reserve fund making it as safe as a term deposit but with vastly better returns.