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Is equity release right for me?

An equity release is a way for you to use your house as a way to get immediate financial assistance. Equity is the amount of money your home is worth. You can take out a lifetime mortgage against the house’s value, or you can choose to sell off a portion of your property to a reversion provider. This is a common choice for people who are in retirement and do not want to struggle with financial decisions.

An equity release is a big decision and should not be taken lightly. It is essential that you are aware of precisely what expectations will be placed on you legally if you decide an equity release is right for you and your family. This is a lifelong commitment and will have an impact on your beneficiaries as well.

If you choose to move forward with an equity release, try to ensure that your equity provider is a member of the reputable Equity Release Council. They will provide a Negative Equity Guarantee so that you will not be forced to pay back a loan amount that is more than your home’s worth if the property growth in your area shrinks.

For anyone asking themselves, “is equity release right for me?” we have broken down what you can expect from different equity plans and how they can possibly affect your future retirement and some alternatives. You can use this knowledge to determine if an equity release is right for you.

What are My Choices?

There are a couple of equity release plans that you can choose from, which include the following.

1. A Home Reversion Plan

Home reversion is when you release a portion of your property to a reversion provider for market value. If the property is sold then, the reversion provider gets a portion. The main benefit of this plan is that you will always own part of your property, which can then be inherited by your successors. The downside is that this is a permanent transaction that you will be unable to retract in the future.

2. A Lifetime Mortgage

Lifetime mortgages are always secured against the value of your home. Choosing a SHIP-approved lifetime mortgage means that you will never be asked to repay a loan worth more than the property. The loan amount is due back at the time of the holder’s death or if they move from the home. One benefit is that you maintain complete ownership of the house and repay the loan at any time. However, the loan interest which accrues may make it hard to determine how much will be leftover for any beneficiaries.

The Advantages of Using Equity Release

Most people choose an equity release because it is a straightforward way to get additional financial stability that will last them until they die or are moved into a long-term facility. The sense of relief that comes from knowing that you will be able to cover any unexpected costs that spring up is worth the responsibilities that come with a release.

1. Retaining Your Home

If you have an equity release plan, you will be able to keep your home and retain your independence throughout your retirement years. This is a way to get peace of mind even if unexpected costs appear. You will also be able to still provide a home for your children to inherit, and whatever amount of money is left over once the loan is satisfied.

2. Cash Money

Sometimes there are unexpected life expenses that require more money that you may have on hand. An equity release allows you the comfort of keeping your resources from being drained without changing anything substantially in your lifestyle.

The Disadvantages of Using Equity Release

There are some downsides to consider. Equity release is not for everyone. The top reasons to possibly avoid taking out a release include the following.

  • It is a one-time payment, and if you are not good at budgeting your funds, it may be gone entirely by the time you need it to pay for a long-term care facility
  • If you do not know how to discover a reputable provider, then you may lose money on the process. To get sound financial advice, look for a provider that will give you a fair deal. Always do a check on your provider and only work with those who are proven to be reputable
  • When you die or move into a long-term care facility, the loan is due, and depending on your plan details, you may have nothing left to give to your beneficiaries.
  • Depending on the plan details, you may be unable to move from that location

What Risks are Associated With Equity Release?

Lifetime mortgages specifically tend to cost more than the loan amount provided by the time they are paid off due to rolled-up interest. While this will not affect you until the end of the loan’s life, it is still a risk. Most people want there to be some amount leftover for their children or close family, which might not be the case with a lifetime mortgage.

Additional Things to Consider Before Deciding

Even considering an equity release is not free if you want to go through the effort of getting your home valued. You can generally expect there to be application costs of around £500 to £700, which does not include the valuation cost.

Also, interest rates for mortgages can be between 5-7%, and you will want to look for the plan that will give you the best interest rate. This might take some searching, but it will be worth it when you still have some money left over after paying your entire loan at the end.

It is recommended that you pay off the interest as you go rather than letting it accrue over the course of years or decades. This can save you some serious money, although some plans have no monthly payment options. You will want to ask a financial advisor about the best repayment schedule for you based on your loan details.

Alternatives to Equity Release

Not everyone is in a situation where an equity release is the best opportunity for them. This could be for various reasons, but whatever your lifestyle, there are still options available, even if you cannot take out an equity release.

1. Unsecured Loan

Unsecured loans are based on your credit instead of collateral. This gives you some control back in terms of owning your home entirely and any future moves. However, the average interest charged on unsecured loans is significantly higher than those of an equity release lifetime mortgage.

You will most likely get less of a loan amount and end up paying more throughout repayment. This can be an excellent choice for anyone who needs a quick loan that they are confident about paying back.

2. Downsizing

There are many fees and costs that go into selling your home and buying a smaller one, but if you have few options and this is the best one for you, it is a way to get some money from your home. It is not always a quick process, though, so if you need an instant financial increase, it may not be the right choice.

Where to Go For Additional Advice

You are going to want to speak with an independent financial advisor. You can reach out to one of our agents today for more information about what to expect from an equity release and any factors related to the various plans offered. The more knowledge you have on hand before making a decision, the better you will be able to parse the best opportunity.

FAQs About Equity Release

There are some frequently asked questions that we have addressed below. When in doubt, always reach out to a financial advisor for more information or clarity on any subject addressed on this page.

1. Would I Still Own My Home?

No matter what equity release plan you choose (e.g., lifetime mortgage or revision), you will be able to remain in your home even if you do not own the deed, such as in the case of reversion. This will not change until you either die or you are moved into a care facility.

2. What Happens if I Move?

You might not have the ability to move later on if you took out a lifetime mortgage as you may not have the necessary resources to buy a whole new property. For reversion plans, you can usually work with your reversion provider to determine what criteria a new home must meet for them to agree. Then you are responsible for all costs associated with selling your house, including any legal fees for the provider.

3. How am I Legally Protected?

  • You can buy back your home at any time though there will be stipulations that may be hard to meet.
  • If you have a lifetime partner or are married, then you can take out a joint-equity so that they can remain in the house after you die or are moved to a long-term facility.

4. What Happens if I Try to End a Lifetime Mortgage Early?

You will be forced to add on an Early Repayment Charge, the total of which will be determined by your provider.

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