Equity release question

Pat38493

Question regarding equity release / mortgages. Is it possible to do an equity release for a relatively short period and then pay it back? For example, if you had a DB pension with a mandatory lump sum that you didn't want to take before normal retirement age, could you use equity release to allow you to stop work earlier (or fund a shortfall due to bad sequence of returns), and then pay it back from the lump sum at age 65.

Also - if your mortgage is still open but heavily overpaid, could you also re-borrow against that same mortgage for the same purpose?

Would this ever make sense to do?

badmemory

Equity release sounds like a very expensive way to do want you want.  I believe some mortgages do allow you to use overpayments which would I think make better financial sense.

johntugwell

Equity release, typically a Lifetime mortgage, is designed to be repaid on the death or move into permanent care of the last borrower.

Otherwise, a penalty to repay more than 10% in any 12-month period may apply, depending upon how long you've had you loan.

Penalty periods last between 4-15 years across Lifetime mortgage plans.

Most people are unable to repay their loan without selling their property.

Lifetime mortgages are unique in that there is no income requirement and you can take an initial release with funds in a drawdown reserve, if you need them.

This is a general comment and there is very much more to consider. Comprehensive advice from a qualified adviser should be sought.

MEM62

A standard  mortgage bight be better suited to your needs.  There will be a early payment charge but I would suspect that this will cost you less than the charges incurred in an equity release arrangement.  

leosayer

I realise this doesn't answer you question directly however it would be good to examine the reasons for not wanting to commence the DB scheme early. Unless the actuarial reduction factors are penal (unlikely) then why wouldn't you use a pension for retirement income?

On a related note, I am quite interested in the factors to consider with the use of Equity Release or Retirement Mortgages to help finance retirement for those who are property rich to the extent that the value is above the inheritance tax allowance, but maybe that's a topic for a different thread.

Pat38493

leosayer said:

I realise this doesn't answer you question directly however it would be good to examine the reasons for not wanting to commence the DB scheme early. Unless the actuarial reduction factors are penal (unlikely) then why wouldn't you use a pension for retirement income?

On a related note, I am quite interested in the factors to consider with the use of Equity Release or Retirement Mortgages to help finance retirement for those who are property rich to the extent that the value is above the inheritance tax allowance, but maybe that's a topic for a different thread.

It was really more of a thought experiment about how to mitigate bad sequence of returns and what options would be available.  I will need to decide the timing of when to put my DB into payment.  I was just wondering whether using some kind of leverage against property would ever make sense instead of simply putting the DB into payment earlier as you say.

If you are absolutely focussed on wanting the max possible guaranteed income after age 65, this might be a reason to explore this.

However, my gut feel is that putting the DB into payment earlier is going to end up being better, since per definition you will end up paying interest on any kind of leverage arrangement, and in my hypothetically scenario you would only do this if your retirement funds were running out and you still have a gap to bridge.