Extra Cash In Retirement?

Is using an equity release scheme to provide you with extra money in your old age a good idea?

Did you know that the over 60s in the UK have around £1,000 billion worth of equity tied up in their homes, and yet nearly half of all single pensioners are dependent on State benefits?It's understandable that people want to hang on to their homes in their retirement but it does seem unfortunate that many live seemingly hand to mouth when they could use the equity in their homes to make life a little more comfortable.Actuarial research published by the Financial Services Consumer Panel in December revealed that the most cost-effective way to release cash from the value of your house was to downsize to a cheaper home rather than using an equity release product.Of course, some elderly people don't want to move, even if they're rattling around in a house that's far too big for them, so an equity release product is the next best option. But how do they compare?The two most common products are lifetime mortgages and home reversions. The Financial Services Authority does not currently regulate home reversions although that is likely to change before the end of the year.The lifetime mortgage obviously involves a homeowner taking out a mortgage on the property. But instead of making monthly repayments, the interest on the loan simply rolls up each year and is only repaid when your home is sold, either when you move into residential care or when you die.As with conventional mortgages, the interest rates vary, so you can choose fixed or capped options if you like so you'll know the amount of interest that will accumulate each year. Most lifetime mortgages have a no-negative-equity guarantee, so the debt should never exceed the value of the houseA home reversion involves selling all or a percentage of your home to a company at a discounted rate for a lump sum, although you retain the right to live there for the rest of your life. When your home is eventually sold on your death or on moving into care, the reversion company gets the agreed percentage of the sale proceeds so if house prices have gone up in the meantime, the company gets the benefit of the increase.The research commissioned by the Financial Services Consumer Panel concluded that the home reversion option was the most expensive form of equity release, sometimes costing twice as much as a lifetime mortgage. A 65 year old would have to live for 30 years to see anything like the same value from a home reversion as a lifetime mortgage.Equity release plans may be growing in popularity as more and more pensioners realise that there's no point in sitting on a vast amount of equity which may ultimately be taken away from them if they have to move into residential care. But in terms of value for money, they're only worth considering if you really cannot bear to release some cash by moving to a cheaper home.More: Money Talk: How To Cash In On Your Home