Homeowners are drawing larger sums of money from their homes using equity release, and around one-fifth of these are planning to pay down their mortgage, new research has found. But what are the potential pitfalls? On average, equity release will give homeowners GBP77,934, up from GBP70,625 the year before, research from Key Retirement shows.
While 63% of people planned to use the money for home or garden improvements, 22% planned to pay off their mortgage. Equity release allows you to borrow against the value of your home, and make minimal or no repayments during your lifetime. When you die or go into care, the loan and any interest is repaid from the sale of the property.
But this debt can rapidly grow. Find out how equity release works, as well as the risks involved in this strategy.
What is equity release?
The money can usually be taken lump sum or drawn down in several smaller payments. There are two types of equity release: lifetime mortgages and home reversion. With a lifetime mortgage, you borrow a proportion of your home’s value and interest is charged on that amount.
This interest is generally ‘rolled up’ into the debt, meaning you don’t usually have to pay anything back until you pass away or sell your home. Home reversion allows you to sell a share of your property to a provider for less than its market value. When you pass away or move into long-term care, the provider gets their share when the property is sold.
So, for example, if you sold 35% of your property to a provider, the provider will be repaid 35% of the final sale price. With either approach, the amount of debt you owe may increase rapidly. So you should think carefully and seek professional advice before making any decisions.
Should I use equity release to pay off my mortgage?
Using equity release to pay off your mortgage can reduce your monthly payments or even bring them to zero. If you’re older, you may struggle to be approved for a remortgage deal from your bank. Equity release may provide an alternative for slashing your payments, as well as help you access a tidy lump sum or regular withdrawals.
But keep in mind that equity-release schemes are designed to be a lifelong commitment and can seriously limit your options if you ever change your mind, need to move or want to use your equity for something else. With an equity-release plan, the amount of debt you owe can rapidly increase over time, meaning the value you own in your home is quickly eroded. Most policies have a ‘no negative-equity’ clause, meaning you’ll never owe more than your home’s value.
But if you’re hoping to leave property to the next generation, equity release could eat into their inheritance.
How much will equity release cost me?
The graph below shows how much you’ll owe over 25 years after releasing GBP75,000 in equity through a lifetime mortgage and home reversion. Based on a GBP250,000 property, you can see how your equity release debt could grow over time, dramatically reducing the the equity you have left. In this example, releasing GBP75,000 means that you could relinquish up to 70% of your property’s value.
This may not be suitable if you’re hoping to pass on your property, or the full value of your property, to your relatives.
Equity release can work in some financial situations but it’s always worth considering alternatives first before committing a portion of your home’s value. For this reason, it’s important to always seek professional advice before choosing equity release.
Alternatives to equity release
There are a few alternatives to equity release that might be more suitable depending of your financial circumstances.
Unsecured personal loan
An unsecured personal loan could be a cheaper option if the amount you want to borrow is small and you can keep up with repayments. But you shouldn’t use an unsecured personal loan to pay off your mortgage, as the interest you’ll face is likely to be much higher than your mortgage interest rate.
Keep in mind, though, that some lenders may have an upper age restriction of 65 years.
If you speak to your lender, or a mortgage broker, you may be able to secure a new mortgage deal over your property, which can bring down your monthly payments. As an example, you may be able to move to a deal with a lower loan-to-value ratio, or one where interest-rates are lower. This may not be possible in all cases, however, as lenders may be reluctant to offer a new mortgage deal to applicants who are older or retired.
If you need to release a significant amount of cash, selling your home and moving somewhere smaller could put more money in your pocket.
Speaking to a mortgage broker can help you figure out the best mortgage product if you’re looking to remortgage or move house.
Every year, we test rechargeable batteries to find the longest lasting and the most reliable after multiple uses. Even the most expensive rechargeable battery can save you money over time, so you can expect to save even more with our cheapest Best Buy. Not only did we uncover six new Best Buys in our latest test of AA and AAA rechargeable batteries, but we also found the worst battery we’ve seen in years.
It only manages a measly score of 53%, which is 30 percentage points less than our top-scoring battery. Avoid the worst rechargeables and pick up a pack that will stand the test of time – see our best rechargeable batteries.
How much does a good rechargeable cost?
A pack of four rechargeable batteries, either AA or AAA, will cost from around GBP4 up to GBP14. You’ll also need a battery charger, if you don’t already have one, so the total cost could be closer to GBP30.
Our tests have revealed that you don’t necessarily need to splash out – we’ve found Best Buy AA rechargeable batteries costing less than GBP6 a pack. So our results can save you money as well as show you the best. Battery offers are worth looking out for if you’re not in a hurry to stock up.
Keep an eye out in supermarkets and online for multibuys and the best deals.
High capacity = the best?
It can be enticing to buy the batteries with the largest capacity, measured in milliampere-hours (mAh), as they generally last longer on a single charge. But our tests have found that the battery quality is not always clear-cut. We’ve discovered that the battery that lasts the longest initially may not last the longest overall, especially with numerous recharges and repeated uses.
For example, our lowest-scoring AA battery lasts around eight hours on a single charge in a high-drain device.
But looks can be deceiving – battery life halved after fewer than 100 recharges.
So while our Best Buy rechargeable batteries may not last as long initially as rival brands, you expect very good battery life even after hundreds of uses.
Which? rechargeable battery reviews
AA rechargeable batteries on test
AAA rechargeable batteries on test
Prices correct as of May 2018.
If you don’t remember Snapcash, don’t worry — on August 30th, Snap will discontinue its peer-to-peer money transfer service that launched at the height of the messaging app’s popularity.
Snapcash was announced back in 2014 when Instagram has yet to steal Snap’s users with the disappearing stories format, and Venmo was one of few apps you can use to send money to friends. Today, Snapchat is struggling to grow its user base against Instagram, and companies like Google, Facebook, Apple, and Zelle have begun offering their own services for transferring money to contacts. In a statement to Techcrunch, Snap confirmed Snapcash’s shutdown. “Snapcash was our first product created in partnership with another company – Square.
We’re thankful for all the Snapchatters who used Snapcash for the last four years and for Square’s partnership.”
Though Snap didn’t specify why it’s shutting down Snapcash, it’s likely that the service never quite took off as Venmo continued to grow while Google and Apple began adding a similar feature to their respective mobile OS. Techcrunch‘s report also notes that Snapcash seems to be associated with some erotic content online, with some Twitter users advertising sexually explicit photos in exchange for Snapcash payments.
The company has been busy trying to boost revenue and user growth by adding a redesign that makes the app more web-friendly and a releasing second generation Spectacles that shoots videos compatible for viewing outside Snapchat.
The hope, Snap says, is to grow beyond the core mobile app — and we’ll see just how well those efforts amount to when the company announces its next earnings report on August 7th.