So just what is Equity Release and could it be right for you?
Equity release is a way for homeowners who are 55 or older to access the equity (or cash) tied up in their property. This can be done through either a lifetime mortgage or a home reversion plan.
A lifetime mortgage is a type of loan that is secured against the value of the property. The borrower can choose to take a lump sum or a series of smaller payments, and the loan plus interest is repaid when the borrower dies or sells the property.
A home reversion plan allows the borrower to sell a portion of their property to a lender in return for a lump sum or regular payments. The lender becomes a partial owner of the property and the borrower retains the right to live in the property for the rest of their life.
It’s important to note that equity release plans can have a negative impact on inheritance and they may also affect your eligibility for means-tested benefits, so it’s wise to seek professional advice before making a decision.
Equity release can provide several benefits, including:
Access to cash
The most obvious benefit is that homeowners can access cash that is tied up in their property. This can be used for a variety of purposes, such as home improvements, paying off debts, or supplementing retirement income.
No monthly repayments
With a lifetime mortgage, you can choose a product that allows no monthly payments which can provide financial relief for retirees on a fixed income.
You can stay in your home
A lifetime mortgage or home reversion plan allows homeowners to continue living in their property for the rest of their lives.
Tax-Free cash
The money received from equity release plans is tax-free.
Flexibility
There are several different types of equity release plans available, which can be tailored to suit the individual needs of the borrower.
It can also provide a way to pass on wealth to loved ones
Using the money from equity release to invest in a life insurance plan or other savings plans to leave something behind for their loved ones.
Whilst there are some great reasons why Equity Release may be right for you, there are equally some downsides that you should consider:
Impact on Inheritance
Equity release plans can reduce the amount of money that can be passed on to beneficiaries when the borrower dies. This is because the lender is entitled to a portion of the sale proceeds when the property is sold.
Negative impact on means-tested benefits
Equity release plans can affect eligibility for means-tested benefits, such as Pension Credit or Housing Benefit.
Reducing the value of the estate
Equity release plans can also reduce the overall value of the estate, which may not be desirable for some people who want to leave a significant inheritance for their beneficiaries.
Interest can add up quickly
Interest rates on equity release plans can be higher than traditional mortgages, which can add up over time and eat into the equity in the property.
Lack of flexibility
Once an equity release plan is in place, it may not be possible to change the terms or to cancel the plan without incurring significant penalties.
Limited ability to move
Some plans may limit the ability of the borrower to move home in the future, which can be restrictive for those who wish to downsize or relocate.
Alternatives
There may be other financial options available to the borrower that would be more suitable for their needs, such as downsizing, taking out a traditional mortgage, or accessing benefits and pensions.
It’s important to carefully consider the potential downsides of equity release and to seek professional advice before making a decision. To fully understand the features, benefits and risks be sure to ask for a personalised illustration.
It’s also important to note that equity release plans can have a negative impact on inheritance and they may also affect your eligibility for means-tested benefits, so it’s wise to seek professional advice before making a decision. Some lifetime mortgages can also be arranged on an interest-only basis allowing you to avoid the debt increasing. If you opt for this your home may be repossessed if you fail to keep up repayments on the mortgage.
If you would like to find out more about Equity Release and whether this is a suitable option for you, speak to our team of experts today on 01202 850 830 for a no-obligation chat. They will discuss your requirements and financial circumstances with you, and be able to provide you with information on whether Equity Release or an alternative option provides the best solution for you. You can also read more on our website by clicking here.