Can Equity Release Help Me Pay For Long Term Care?
As we get older and reach retirement age, lots of us have to ask for help at home for ourselves, or for a partner. Whether we chose to access care at home or in a specialist setting, it costs money. Not many people have the income to support long-term care out of their own pocket, and if you're in this situation you might be looking for alternative options. One of these options is equity release.
When can you access equity release to fund care?
If you have paid off your mortgage, or very nearly paid it off, you might consider this sort of scheme. It could be suitable if you would like to stay in your own property but benefit from at-home help.
Equity release isn't used for the sole purpose of funding care; it is simply a way to generate additional income for people who are not willing or able to take on a bank loan. You might also consider this if you would like to access cash for another purpose such as essential home improvements; for example if you require home modifications in your golden years to assist mobility and independence.
What schemes are available?
There are two distinct equity release processes on offer: home reversion plans and lifetime mortgage arrangements. These differ as follows:
Home reversion plans are the lesser known of the two. With this type of scheme you will sell a proportion of your property (up to 100 percent). You will receive the cash either as an income or lump sum, or both; and you may opt to have the cash released slowly, selling a percentage of your home now and a further percentage should you need the cash several years later on. You will be able to continue living in your home as a tenant but you will no longer own the portion of the property you have sold.
This scheme tends to favour older people (over the age of 70), who will usually achieve a higher percentage of the property's current market value than younger applicants. Benefits include the ability to stay in your own home until you die or move into a care home. You can choose to access cash as a lump sum or as regular payments for the rest of your life.
With a lifetime mortgage you remain the owner of your property but take out a loan secured against it to which interest is charged. The loan only needs to be repaid when your home is sold after your death or once you move into a care home. You can access this sort of scheme if you are over the age of 60, if you require care but plan to stay in your home. With a lifetime mortgage you are charged interest which you can either choose to pay as you go, or allow to be settled with the sale of your property once you move on.
Problems may occur when the home is sold and its value isn't enough to settle the loan plus interest. In this case your beneficiaries would be obliged to make up the difference. To prevent this situation occurring you should only choose this service from a provider offering a “no negative equity guarantee”.
When might you consider equity release?
You might consider equity release if you are over the age of 60, you own your own home, you don't meet the criteria for care funding through the local authority, you need to make up a shortfall in care fees, or you want to top up the services you already receive.
If your retirement pot simply won’t cater for the cost of necessary long-term care, equity release is a viable option.
Kate Fisher writes for retirement-experience.co.uk, equity release specialists based in the UK.