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Downsizing vs equity release: Weighing up the pros and cons

Posted on: 25 February 2020 by Key Equity Release

A no-nonsense comparison of downsizing versus equity release as a means for retirees to free up some of the capital tied up in their property.

release capital from your home

As you approach or begin your retirement, you may be looking for ways to improve your finances; whether you want to reduce existing debts, pay off your existing mortgage or boost the cash you have available to you. More and more retirees are starting to consider their home as a part of their later life funding and with many options available for how to access the funds locked in your home we look at a couple of options available to you; should you downsize your home or unlock cash from it with equity release?

Downsizing

Now that the kids have flown the nest, you could find you have more space on your hands and your home may feel a little too big. Do you want a fresh start now you’ve started a new phase of life?

On the plus side, downsizing can be a great move at this time of life. If you have an outstanding mortgage, selling your home and buying a smaller house could raise the capital to pay off your existing mortgage and eliminate a large cost from your budget. 

The money from your house sale might also be used to pay off any outstanding debts. Smaller energy bills each month and perhaps a lower council tax band could also help save money.

Smaller homes are easier to maintain and take less time to clean, leaving more time to do the things you want to. If you’ve lived in your home for many years, you’d be surprised by all the things you’ve forgotten about that have gathered dust in the attic; the perfect chance to declutter and shed your excesses.

On the other hand, there’s a downside to downsizing. While it may be good for some to close the book on the home they raised their family in, others might not want to say goodbye. You’ve put a lot of love and time into your home. If you’ve lived in the same place for a long time, you’ll have a lifestyle you’ve enjoyed and friends who you may lose touch with if you move away from the area. There is also the issue of stamp duty, with rates reaching 5% for properties valued between £250,001 and £925,000 and climbing to 12% for properties valued over £1.5m which can put many homeowners off choosing to downsize their homes.  

Equity Release

One alternative to downsizing could be equity release. As with downsizing, if you want to eliminate expenses from your budget such as paying your existing mortgage or other existing debts, a lifetime mortgage could allow you to release cash from your home to pay off those debts. You should always think carefully about securing a loan against your property.

Unlike downsizing, if you want to stay in your home you love, you could with equity release. With a lifetime mortgage there are typically no monthly repayments to make as the loan, plus roll up interest, is repaid when the plan comes to an end. You could release a single lump sum or take out a drawdown plan, releasing smaller amounts over time following an initial lump sum.

Remember equity release will reduce the value of your estate and may affect your entitlement to means-tested benefits. It's worth bearing this in mind as equity release will also have implications on any inheritance you may intend to leave your loved ones. However, with some plans there is an additional feature to ensure a guaranteed inheritance.

If you’d like to know more visit What is Equity Release?

Key Equity Release offer Lifetime Mortgages only, which is a loan secured against your home. Typically there are no monthly repayments as the loan plus roll-up interest is repaid when the plan comes to an end following death or entry into long term care. Remember equity release will reduce the value of your estate and may affect your entitlement to means-tested benefits.

To safeguard your health, our expert equity release advice is now available in full over the phone, so calls us free to find out more on 08082080963. 

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