Equity Release Pros & Cons

A Quick Introduction to Equity Release

As you probably know by now, equity release refers to financial products that allow homeowners aged 55+ to release cash tied up in their homes. This can be a fantastic way to help you live a financially stress-free retirement.

There will always be benefits with every financial decision, and some drawbacks that you need to be aware of.

Before making this life-changing decision, check out the 10 pros and cons of equity release!

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

In the past, equity release was not always a desirable option due to higher 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 Council, 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 be able to assist you to make 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?

Great news!

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 cons so that you can make your final decision with confidence.

Here are 4 disadvantages of equity release.

1. It Might Be Costly to Arrange

There are some costs of equity release that you must be aware of, including:

• Financial advisor 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 Disadvantages

The great news is that these negatives are challenges that can be 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 simply 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.

Getting Financial Advise – Where Should I Start?

If you do not already have one, the first step is to find a financial advisor 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 have a look at the best equity release providers, who are members of the Equity Release Council.

Got Questions? Check These First

In Conclusion

There are more pros than cons of equity release. The disadvantages highlighted are only negatives for specific individuals.

Fortunately, should you go with a regulated scheme, the Equity Release Council will protect you from being taken advantage of. 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.