Are you over 55 and looking for ways to fund your retirement? By now, you’ve probably heard of equity release as it’s a booming market in the UK.
Equity release is a type of mortgage that allows you, the homeowner, to unlock the equity in your property without having to sell it. If you are considering equity release, there are some important things you need to know about the risks and benefits associated with these products.
This article will discuss how equity release works, what it can be used for, and whether or not it is worth the risk in your specific situation.
Let’s simply unpack this tricky subject!
What You Need to Know Before Considering Equity Release?
There are some equity release pitfalls that you must be aware of. Therefore, it’s vital to look at the alternatives before considering equity release.
There are many other options for older adults that don’t involve equity release, including downsizing to a smaller home or condo, and renting your house out while you live in it.
Alternatively, you could consider transferring the balance of your mortgage to another member of the family so they can take over payments and give you monthly income. Or perhaps move into an assisted living facility with all daily needs met by staff members (not just “assisted living”). Finally, there might be the option of obtaining supplemental security income from disability-related financial support1 if necessary.
Learn more about: The 10 Alternatives to Equity Release
Is Equity Release Safe?
The answer is, it depends. Equity release may not be safe for you if:
- You’re still working, and the amount of money that’s released from your home could change how much you need to save for retirement by more than £500 per month
- Your estate has a lot of other assets besides your house
- There are specific debts or obligations tied to your property like an open mortgage or a shared ownership agreement2
- You’re not yet 65 or older, and there’s a risk of needing to use the money for health care costs in your lifetime
It may be safe if:
- You’re already retired
- You don’t want to leave your home to your family for their future generations
- Your estate has little or no other assets besides the equity in your house, and you don’t have any specific debts or obligations tied to it
- You’re at least 65 years old
TAKE NOTE: While these are guidelines it’s important to note that each case is individual. Do not defer away from equity release based on these criteria alone. You should rather consult an expert before deciding whether equity release is right for you.
What Are the Risks of Equity Release?
There are always risks when you release equity from your home. These include:
- There is no guarantee that you will get back the amount of money you release from the equity, should property prices plummet.
- You’ll have a harder time qualifying for future mortgage loans, which can make it more difficult or impossible to move into another home.
Some lenders offer guarantees on reverse mortgages and allow you early access to your proceeds if needed, but they come with higher interest rates. Other long-term alternatives are not subject to these risks; some are guaranteed by state programs specifically designed to protect older adults who need the income now but want their assets protected as well.
Should I Consider Alternative Solutions?
Examples of alternative solutions to using equity release:
- Downsizing to a smaller home or condo and renting your house out.
- Transferring the balance of your mortgage to another family member so they can take over payments and give you monthly income, for example, by giving them the title on the property.
- Moving into an assisted living facility with all daily needs met by staff members.
- Obtaining supplemental security income from the government if necessary.
- Opening a reverse mortgage allows you early access to your proceeds if needed with higher interest rates.
It would help if you considered all of your options before deciding to use equity release because it can be a big step and one that will have an impact on your family and future generations.
Is Equity Release Worth the Risk?
The short answer is yes!
Many people decide to use equity release. However, the answer for you is unique. You should always consult an expert before deciding whether equity release is right for you.
Once you’ve had all your financial questions answered and you feel confident in your decision, equity release can be a great way to free up cash for things like healthcare and long-term care; or even to buy that bucket list car!
How Do I Know if Equity Release Is Right for Me?
This is a difficult question to answer without knowing more about your financial situation. Many factors go into deciding if equity release is right for you, and it’s important to consider all of these details before making any decisions on this product.
How Do I Reduce the Risk of Equity Release?
To reduce the risk of equity release, you need to be very careful about your decisions. You should always consult an expert before deciding whether or not this is the right solution for you.
How Much Can I Receive With Equity Release?
The amount you can receive through equity release will depend on your unique financial situation. You should always consult an expert before deciding whether or not this is the right solution for you.
Is It Possible That My Home Could Go Into Foreclosure if I Use Equity Release?
If there is no money left over after using this type of loan or product, then yes, it could go into foreclosure because mortgages should be paid off first (or transferred) before this one would kick in.
However, some lenders have options that allow people who want to continue living at home as long as possible while still receiving income from their property.
Equity release is an important consideration for those who are nearing or in retirement. Be sure to speak with a professional first and make your decision based on the facts. Equity release can indeed offer some financial relief.
Still, before signing on the dotted line, there is much research required and considerations of how this may affect other aspects of your life. Equity release has risks, so be sure to check out the pros and cons of these financial products!