If you’re looking for extra liquidity to make your life comfortable throughout your retirement, you might be tempted to downsize. Downsizing is especially tempting, with the cost of living rising due to high inflation.
What is downsizing, and why do people do it?
Downsizing is a relatively straightforward procedure: you sell your existing large property and move into a slightly smaller one, pocketing the difference. It might be that a smaller home is not only cheaper but better suited to your lifestyle. For example, if you’re struggling to climb the stairs, then you might elect to move into a bungalow.
There are a few downsides to this approach. For one thing, you won’t be able to enjoy living in a larger house, which might have considerable sentimental value, especially if you’ve been living in it for many years. For another, you’ll have parted with a sizeable asset, which you’ll no longer be able to pass on to your children.
So, what are some alternatives to consider if you’re not ready to part ways with your beloved family home?
Among the more attractive alternatives to downsizing is equity release. It’s worth looking at exactly how equity release works. Equity release is a type of mortgage whereby you effectively sell a portion of the property back to the bank. Unlike a traditional mortgage, you don’t repay the loan until you come to sell the property.
You don’t get the same amount of money as you would from selling your property on the open market, but you do get to stay in the same property without the disruption associated with a sale. You can release a lump sum of cash with which you can do whatever you please – whether it be travelling, supporting family or investing in home improvements.
Create an Annex
If you have the right kind of property, then you might decide to partition out a portion of it to rent to other people. If you’ve got a lot of extra space, renting out part of your property can generate a reliable income. With that said, this creates an ongoing administrative workload, and you’ll have to be comfortable inviting strangers into your home and converting it to give everyone privacy and security. Annexes don’t tend to be cheap, but if you create the right space, you might quickly make the money back.
Re-mortgage the home
Remortgaging is done for a range of reasons. You might be coming to the end of your existing fixed-term rate, and be looking for a better deal. But for many older people, the promise of borrowing more money is an excellent reason to look into another mortgage. Remortgaging might be practical if you’ve already paid off a substantial chunk of your existing mortgage without any trouble. Remortgaging can work for some and not others, so ensure that you do thorough research before committing to anything.