It’s no secret that buying a home is a good investment. You pour your money into renovations, redecorate a few times and enjoy living in your dream home. Some people opt to sell and downsize when they get older. Others settle into their life-long home and indulge in the extra space.
However, after the pandemic, many people are looking to free up funds to cover financial difficulties. If you are over 55, you can release equity from your home and spend it on whatever you like. You could use it for a kitchen renovation or cover your bills. It’s up to you.
What is home equity?
Home equity is the difference between how much your home is worth and how much you owe on your mortgage. For example, if your home is worth £200,000 and you owe £150,000 on the mortgage. You have £50,000 of equity in your home. The more you pay on your mortgage, the more equity you will access to. Your equity will also increase if the value of your home increases over time. Unfortunately, this works both ways, and your equity will fall if the value of your home drops quickly.
How does it work?
An equity release mortgage is when a lender gives you cash in return for a share of the sale proceeds. An equity release loan is not settled until after you leave your home – while a traditional mortgage is paid back over a set period. For example, you may pay a 10% down payment of your home’s purchase price. If your home is valued at £200,000, you will make a down payment of £20,000. The lender will then offer you a mortgage loan of £180,000. In three years, your home may have gone up in value to £210,000. You may owe £170,000 on the mortgage and have £40,000 in equity.
You need to know the value of your home to determine the equity. You can ask a real estate agency for an official valuation of what your home is worth in today’s market. It’s best to get a few estimates to make sure the valuation is correct.
How to use home equity
Once you have released equity from your home, you can decide how to spend the money. You could renovate the home with a new bathroom or loft conversion and increase the property value. You should research your street value first. Every street has a maximum value price that your property cannot exceed. There is no point in investing in renovations if you have already reached the maximum value. Unless you plan on staying in the home for the long run and want to improve your space for personal use.
You could use the money to help younger family members or for your retirement.
Release equity from your home so you can have more money to play with.