Equity release is a fantastic financial product that allows you, if you are over the age of 55, to release the cash tied up in your home. The term covers a number of plans available on the market with one thing in common: they allow you to access your equity without selling your home.
Equity release can be a great option for seniors who are cash-strapped and need money for everyday living, or dream of retiring in the lap of luxury.
While this is all ideal, equity release must be carefully considered, with guidance from an independent financial adviser. Are you wondering what are the 10 top equity release tips that you need to know? Here they are!
#1 Consider Your Alternatives
It’s important to think about all of your options. Equity release is not the best option for everyone, and other alternatives may be better suited to your needs. Equity release should only ever be considered as a last resort!
Some alternatives to equity release include:
- Renting out your property to help with the mortgage or for a profit
- Selling your home and investing in another property (possibly an investment property)
- Considering whether you might be eligible for benefits like Pension Credit1, Attendance Allowance2, or Carer’s Allowance3.
Discover all the: Equity Release Alternatives
#2 Inheritance Protection
One of the biggest equity release pitfalls is that you are using some of the money that would be passed on to your family when you pass away.
With equity release, when it comes to the sale of your home, your loan, plus interest, is paid to your equity release provider. With compound interest4 and unpredictable housing prices, the entire value of your home might end up going to the equity release firm.
The great thing about inheritance protection is that no matter how much your house is sold for, you can put aside some of the value that is then guaranteed to be a part of your will. This, therefore, can’t be touched by the equity release firm.
The downside to this option is that it will negatively impact the amount of equity that you can release from your property.
#3 Consider Making Partial Repayments
Making partial repayments is a great option if you are working or have the means to do so. As with any other form of borrowing money, equity release has interest attached, which can be paid off by making smaller payments over time. The compound interest could be significantly less if you chose to make this happen.
These repayments will mean that, at the end of the day, there will be less that needs to be repaid to the equity release provider when you pass away or move into permanent care. Therefore, your family is likely to inherit more. With rising property prices, there’s a chance that you can release equity and still leave a significant amount to your loved ones when you pass away or move into permanent care.
If you would like to make partial repayments, it’s important to notify your financial adviser at your initial appointment as not all plan providers allow you to do so. Your financial adviser will be able to tell you which ones do.
Learn about the importance of: Equity Release Advice
#4 Talk to Your Family
The first thing to do when considering equity release is to talk to your family. Equity release can seem scary, but it’s a great way for you and your loved ones to get the most out of life with less financial stress.
If you are close with your family and care about their future, you should involve them in the process as you do reduce their inheritance by releasing equity from your home.
However, you can use equity release to give your family an early inheritance.
Isn’t that a dream?
This could aid in debt relief, medical expenses, caregiving costs, or even future college tuition payments!
It takes a village, as they say!
#5 Find Out How Much You Could Release
The first step in the equity release process is to find out how much equity you can release from your home. You can use our handy calculator for home equity release right now to learn approximately how much! The next step is to contact your financial adviser who will get you in touch with the best lenders to give you an exact offering.
WIth equity release, you can access more money than was previously possible without selling up and moving.
#6 Think About How Much You Need to Borrow
Consider how much you will need to borrow. With equity release, you have the option to unlock a lump sum, small monthly payments, or a combination of the 2. Only release what you need in the foreseeable future, to avoid paying any unnecessary interest.
Equity Release can be expensive, and if you can manage your monthly income without it, don’t take out a loan on what’s left in your estate when you die!
#7 Your Property Valuation
One of the important equity release steps is property valuation5. There may be a charge for this, but some lenders do offer this as a free service.
The valuation will give the equity release provider details about how much your property is currently valued at, which they will use to calculate exactly how much equity you can release. The value usually considers variables such as location and current market conditions, plus any potential future changes that could affect the price. Finally, they will look at recent sales of similar properties in your area.
The equity release provider’s valuation will be used as the basis for your equity release mortgage, so it’s important to understand what they’re basing their calculation on.
Also check out: The Equity Release Process
#8 Will You Want to Move In the Future?
If you don’t want to stay in the same home, equity release may not be an option.
However, according to rules set out by the Equity Release Council6, you can transfer your plan, if your lender approves the new property. Therefore, it’s vital to send them information on the new property before signing any paperwork.
Just keep in mind that this might limit where you can move and if you relocate to a different country, you will need to cancel your plan and incur early repayment charges.
#9 Impact on Means-Tested Benefits
One of the key equity release considerations is how it will affect Means-Tested benefits such as Income Support7, Pension Credit, and Disability Living Allowance8. It’s important to find out if you are entitled to any means-tested benefits before releasing equity so that you can plan for these changes in your budget accordingly.
When you release equity, you may have your entitlement to certain benefits changed or withdrawn altogether; this applies whether it’s from Guaranteed Income Payments9, Bereavement Benefit10 or Attendance Allowances.
The amount released must not exceed £18,000 (£36K under the band); otherwise, other sources of pension income will be reduced by 50%. If equity released exceeds £18,000 (£36K under the band), they will not be entitled to any other sources of pension income.
#10 Get Advice Tailored to You
If you’re unsure which equity release is right for you, get advice tailored to your specific needs from an independent financial adviser. They will help with the equity release process and find a product that suits all of your requirements, such as the size of your mortgage, how much you want to release, and when you want to do so.
Pro Tip: Your adviser will be an integral part of your equity release journey so be sure to use someone you trust.
How Can Equity Release Providers Charge Less?
The equity release industry comprises many different players, so you should shop around to find the best deal for your needs. Equity release providers are under pressure from the competition, and there’s no need to pay more than you have to!
How Will Equity Release Affect My Estate Planning?
If you plan on releasing a large amount of your property, it might be worth seeking professional advice before proceeding with an equity release. Equity releases could affect how much inheritance tax or capital gains tax may apply when passing down assets to beneficiaries in the future.
How Do I Select Equity Release Providers?
You should always do your research and find out as much information about providers before making a decision. Equity release services offer many different types of equity release, including lifetime mortgages, so you will need to decide which type suits you best.
You can also compare the charges for Equity Release products with other financial products from banks or building societies and Equity Release providers.
How Can I Save Money on Equity Release?
It’s always worth comparing providers to find the best deal for you! You will also want to get a few quotes before making your decision so that you can compare equity release costs.
It might be tempting to go with the cheapest provider, but this could cost more in the long run as they may not have all of the features and benefits that suit your needs.
Equity release is an option that many homeowners are considering as they approach retirement. However, it’s important to remember that equity release has some serious drawbacks for homeowners and their family members. Check out the pros and cons of equity release to learn what some of these are.
When evaluating whether or not releasing equity is a good idea for you or your loved ones, it’s crucial to consider all of the potential ramifications before signing on the dotted line.