Demand for equity release is soaring. But, if you need money in later life, is putting your home on the line really the best option?
What is equity release?
More and more people are opting to access the money in their home via equity release, with demand at a 10-year high, according to a report from the Equity Release Council.
The most popular products are drawdown lifetime mortgages. This is where you take out a loan against your home.
You get a small initial lump sum followed by the option to take an income in the future.
You are charged interest on the money you take which can be rolled up and paid when the mortgage is repaid.
With lifetime mortgages you don’t make any repayments, instead when you die or go into a care home your house is sold and the mortgage repaid.
Equity release may be growing in popularity, but that doesn’t necessarily mean it is the right option if you need some cash in later life.
The average interest rate on lifetime mortgages is 3%-5% and you may have to pay a range of charges such as arrangement fees, completion costs and legal fees.
Here are five alternatives you may want to consider.
1. Credit card
Low interest rates and a battle for customers between credit card providers mean there are some great deals available at the moment.
If you only need a relatively small amount then a 0% credit card could allow you to retain ownership of your home and pay no interest on your borrowing.
The Sainsbury’s Nectar Purchase Credit Card has an interest-free period lasting 28 months – plus you’ll earn Nectar points on your spending.
If you need cash then Virgin Money have a credit card offering money transfers – where you move money from your credit card into your bank account – interest-free for 32 months with a low 1.69% fee.
2. Personal loan
Borrow the money via a personal loan and you will avoid all the fees associated with equity release and leave your home out of the equation.
Rates are currently at record lows. If you want to borrow between £7,500 and £15,000, Ikano Bank has just cut its rate to a market-leading 3.1%.
If you need a larger sum, First Direct will lend up to £50,000 to existing current account customers, although the rate is pretty high at 6.7%. This falls to 3.4% if you are borrowing less than £30,000.
So, it is possible to borrow large sums without having to risk your home.
If you don’t want to worry about meeting the repayments on a credit card or personal loan, another option is to downsize.
Moving to a less expensive home will allow you to realise the value of your home now.
This avoids the worry that a house market plunge in the future could wipe out the money you have left in your home after the lifetime mortgage is repaid.
This option also means you avoid going into debt and the interest charges that can come with it.
4. Rent a room
Many people hate the idea of upping sticks and leaving their family home late in life, yet they have empty bedrooms.
Another option to get a regular income from your home is to take in a lodger.
Under the Government’s Rent a Room scheme, you can earn up to £7,500 a year tax-free from renting out a furnished room in your home.
You might find it an invasion of your privacy, or you might welcome the company – either way, it’ll definitely provide a regular source of income.
5. Rent out your drive
Another alternative could be renting out your drive.
More and more people are on the hunt for parking near their workplace or music or sporting venues.
Depending on where you live you could make £100 to £200 a month from renting out your driveway via websites such as YourParkingSpace.co.uk or JustPark.com.
There are numerous other ways you can make money from your home read more in our easy ways to make money guide.
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