Debt in retirement isn’t uncommon
Debt can be a worry when planning your retirement. However, there are various financial solutions available to help clear your existing debts and enable you to enjoy later life. Equity release could be one of them.
In 2021, more than a quarter of those releasing equity cleared existing unsecured debts according to Key*.
Use equity release to get peace of mind in retirement
Equity release is a way to access some of the tax-free funds locked in the value of your home.
It’s a finance product that can be tailored to your needs and comes in two forms; a lifetime mortgage – the most popular form of equity release – and a home reversion plan.
Using a lifetime mortgage to pay off existing debt
A lifetime mortgage is similar to a standard mortgage, in that it’s a loan secured against your home.
However, unlike a standard mortgage, and the vast majority of other loans, with a lifetime mortgage, there are typically no monthly repayments unless you choose to make them.
That means you could use your home’s value to pay off your existing debt without having to cover any monthly repayments in return.
With a lifetime mortgage, you’ll also always retain full ownership of your property, so you can stay in it as long as you’d like.
That’s because the loan plus roll up interest is usually repaid when the plan ends and your property is sold typically when the last remaining applicant passes away or moves into long-term care.
With a lifetime mortgage you can choose to take all your money at once or take an initial smaller lump sum and save the rest for a later date.
That’s known as a drawdown plan. And with a drawdown, you only ever pay interest on the money you release. Not all drawdowns are guaranteed.
Benefits of a lifetime mortgage
- Use some of the tax-free cash locked in the value of your home to pay off existing debt
- Typically, no monthly repayments unless you choose to make them
- You retain full ownership of your home and can stay in it for as long as you like
- You can access the money when you need it through a drawdown plan
- You can still leave an inheritance if you wish with some plans
- You’ll never owe more than the value of your home
Drawbacks of a lifetime mortgage
- Equity release will reduce the value of your estate and may affect your entitlement to means tested benefits
- Your lifetime mortgage interest will roll up and compound
- You could face considerable early repayment charges if you repay your plan early
See how much you could release
See how much tax-free cash you could unlock from the value of your home with our free equity release calculator.
Using a home reversion plan to pay off existing debt
A home reversion plan gives you access to some of the money that’s tied up in the value of your property, and you don’t have to make any monthly repayments to make.
However, with a home reversion plan, instead of the money coming from a loan against your property’s value, it’s through selling part or all of your home to a home reversion company.
Again, you can still live in your property for as long as you wish; however, you won’t own it, and you’ll likely receive less money for the portion you sell than it’s true market value.
Mortgage Advice Bureau Later Life do not offer home reversion plans, only lifetime mortgages.
Benefits of a home reversion plan
- Use some of your home’s value to pay off existing debt
- No monthly repayments
- You can still leave an inheritance by only selling part of your home
Drawbacks of a home reversion plan
- You will not receive your home's full market value
- It can be costly if you want to buy back the portion of your home as you have to buy back the portion sold at full market value
We’re here to help you find the right option
We understand that if you’re thinking about using equity release to pay off your existing debt, you may have some questions. And rightly so, it needs to be the right option for you and your circumstances.
And that’s why we’re here to help. We understand equity release isn’t for everyone, and we’ll never say it’s the right option for you unless we’re certain.
We don’t charge you for our service unless you decide to go ahead. You’ll be able to find out whether equity release suits your needs before incurring any fees.
Other ways of tackling your debt
There are several debt charities and organisations available for you to speak to if you’re struggling with debt. Government-backed, The Money Advice Service and charity, StepChange are just two of many that can offer you free advice.
See how much you could release
See how much tax-free cash you could unlock from the value of your home by using our quick and easy lifetime mortgage calculator.
Things to consider