A blind step into the world of equity release could leave you with massive regrets!
While equity release has changed the lives of close to 20,000 UK homeowners in the first half of 2021, there are risks involved, like all financial products.
In addition, there are life-changing pros, and if you’re not aware of these, you could end up spending largely more than you need to and make irreversible life-altering mistakes.
Do not fear! We’ll help you discover:
- The strengths of equity release.
- The negatives involved with these products.
- If equity release is worth it, considering the disadvantages.
- How to benefit from the equity release positives, and overcome the obstacles.
We’ve delved into 1000’s of hours of research, analysing over 220 plans by more than 18 lenders, and put together this vital information.
Are you wondering about the 10 benefits and pitfalls of equity release? Here they are!
What You MUST Know
Before you continue reading, we’ve summed up what you need to know about equity release in this quick video. Check it out:
6 Benefits of Equity Release
Equity release is increasing in popularity in the UK for a reason. It is the perfect way to give you financial freedom while still retaining the liberty to live in your home.
Check out these 6 incredible benefits of equity release!
1. Release Tax-Free Income
Equity release allows you to earn a tax-free income.
Unlike traditional means of earning, you will not be obligated to pay any income or capital gains tax on your released funds.
2. Equity Release is Convenient With Low Interest Rates
Luckily, interest rates are at an all-time low! You can, therefore, release cash tied up into your home without worrying about excessive rolling interest.
3. You Can Remain in Your Home
Something fantastic about equity release is that you have the opportunity to stay in your home for the rest of your life or until you need to be moved to permanent care.
You might even want to consider using equity release as a means to get in-house care, should you wish to stay put for the remainder of your days.
4. You Will Never Go Into Negative Equity
Equity release comes with a ‘no negative equity guarantee’.
This means that when you pass away or go into permanent care and your house is sold, your estate will never owe more than the value of your property, should the property price plummet.
In addition, this is irrespective of the original property value and how much interest has accrued.
These regulations have been set out by the Equity Release Council1, a governing body that ensures compliance and client protection in the equity release industry.
Learn more: The Equity Release Council
5. You Don’t Have to Make Repayments
One of the most incredible benefits of equity release is that you do not need to make a single repayment in your lifetime.
This means that you can receive a lump sum, smaller lump sums, or monthly income without being stressed about finding a way to pay it all back.
In general, the equity released, plus interest will only be paid back on the sale of your home, or when you move into permanent care.
This being said, you do have the opportunity to pay back the loan or rolling interest, should you be in the position to do so.
Your financial adviser will assist you in making these arrangements with your equity release provider.
6. You Can Protect a Percentage of the Value You Pass On
Does equity release sound like the perfect answer for you, but you are concerned that it means you will not be able to leave an inheritance?
With equity release, you have the opportunity to protect a percentage of the value you pass on.
This means that a portion of your estate will not be tied up into your equity release plan and will be left to allocated family members when you pass away.
Discover NOW: Who are the Best Equity Release Providers?
4 Disadvantages of Equity Release
Despite the vast benefits of equity release, there are, of course, some pitfalls to be aware of. You need to consider the disadvantages so that you can make your final decision with confidence.
Here are 4 drawbacks with equity release.
1. It Might Be Costly to Arrange
There are some costs of equity release that you must be aware of, including:
• Financial adviser fees
• The plan contributor’s cost
• Property evaluation fees
• Solicitor fees
Releasing equity will usually cost you between £2,000 and £3,500.
Find these details here: Equity Release Costs
2. It Might Make Remortgaging Your Property Difficult
While equity release is a perfect solution for providing tax-free income, you never know what the future might hold.
Should you find yourself relocating due to unforeseen circumstances, you might find it difficult to remortgage your home.
The good news is that you can transfer your equity release plan to a new property should it be approved by your provider.
However, if you decide to move to a new country or need to settle the mortgage early for any other reason, there might be early repayment charges.
You can learn more about both these instances from your financial adviser. It is important to understand your plan’s policies before making your final decision.
3. Equity Release Might Effect Your Benefits
When unlocking cash with a lifetime mortgage, you need to first inquire about your state benefits. You might find that you are no longer entitled to means-tested state benefits.
4. It Decreases Your Inheritance
With equity release, you are essentially spending a portion of your estate before you pass away instead of leaving the money for your family.
Using some or all of the equity tied up in your home will, therefore, decrease the amount of money that your family will inherit from the sale of your home.
In addition, your home will need to be resold rather than being left to your family, if they aren’t in a position to repay your equity release plan with alternative means.
Overcoming These Obstacles
The great news is that these negatives are challenges that you can overcome!
Regarding equity release costs, you can use some of the equity released to pay these off, eliminating your stress. It just means that you will receive slightly less than the value tied up in your home.
In addition, remortgaging your home is only a concern if you need to relocate. As long as you use your equity responsibly, you can stay in your home for the rest of your life and still have enough money to survive.
State benefits are not enough to thrive. While free income is excellent, the reality is that you might be better off using some of the money released from your home to live comfortably rather than relying on means-tested state benefits.
Finally, the value of your inheritance might not matter to you. Perhaps you want to release equity to give your kids an early inheritance, you don’t have a family to leave money to, or your family is well-off and doesn’t need your help.
Given the Facts, Is Equity Release Worth the Time, Effort, and Money?
The short answer is yes!
Equity release can be the perfect way to live the retirement of your dreams.
As long as you work with accredited professionals, fully understand the terms and conditions of your plan, and weigh out all the pros and cons, you will not waste too much time, money, and effort.
Finally, a little bit of hard work and organisation now means an increased standard of living or taking that trip of your dreams.
Gain inspiration from: Equity Release Uses
Getting Financial Advice – Where Should I Start?
If you do not already have one, the first step is to find a financial adviser who can help you find the perfect scheme to release the cash tied up in your home. Perhaps find someone in your community who has insight into your local property law.
You should also look at the best equity release providers who are members of the Equity Release Council.
Got Questions? Check These First
How difficult is it to release equity?
As long as you are over 55, own your home valued at least at £70 000, and have no, or only a small mortgage to pay off, releasing equity should not be difficult. You will need to work with a financial advisor to help find the right plan for you.
Can I take out another loan against the value of my house?
Once you have released equity from your home, you won’t be able to take out an additional loan against the value of your property.
What benefits will be impacted if I take an equity release plan?
If you take out an equity release plan, you may no longer be eligible for means-tested benefits and pension funds. You will need to speak to your financial advisor, who will advise you on the matter.
Can you have separate equity release plans with different providers on the same house?
You cannot. You will need to take out one plan, even if you are 2 or more homeowners. The youngest homeowner needs to be at least 55 for you to qualify for an equity release.
There are more advantages than disadvantages with equity release. The opportunities highlighted are only negatives for specific individuals.
Fortunately, the Equity Release Council will protect you from being taken advantage of if you go with a regulated scheme. This making equity release a low-risk financial decision.
Do you still feel unsure of all there is to know about equity release? You might want to check out information on what’s equity release. In addition, get in touch with your financial planner, who will be available to guide you through this process.