If you’re thinking about equity release, there are few things you should consider before you apply. Equity release is a useful way to free up cash from your home in retirement. You might need to meet increasing living costs. You might be looking at investing. Or you might want to help your loved ones get on the property ladder. Whatever your motivation, you should seek equity release advice from a specialist adviser first. Here are five reasons why:
#1 They’ll explain the options available to you.
Due to rising demand, the number of equity release products on the market has increased dramatically in recent years. With specialist equity release advice, you can find specific products that suit your needs. Equity release products are split into two broad categories: lifetime mortgages and home-reversion plans. A lifetime mortgage comes with a fixed interest rate. Unlike a typical repayment mortgage, you don’t pay it off in regular instalments. Instead, your debt is rolled up. This means interest is calculated on an ever-increasing total. You only pay off the lifetime mortgage when you come to sell your property or move into long-term care. A home-reversion plan means an equity release company buys a fixed share of your property from you but below the market value. This is because the company is taking a risk on house prices. They also don’t know when they’ll get their money back as the property wouldn’t be sold until you die or move into care. They make money by waiting for the value of their share to increase over time. When you seek equity release advice, your adviser will explain the difference between products and recommend the best option for you.
#2 They’ll save you money
Equity release advice can help you find a mortgage with the most competitive equity release interest rate and the lowest charges. Some products allow you to make monthly or ad-hoc interest repayments to keep the total debt down. Some start out with you committing to pay the interest and then you can switch to a roll-up basis in the future. You can also choose a drawdown product that gives you access to the funds in stages so you only pay interest on the equity you’ve actually released. A specialist equity release adviser can suggest ways to cut your costs and find products with the right features for you.
#3 They’ll make you aware of the costs
With many equity release mortgage products, the interest rolls up. This means the loan is only repaid through the sale of your property when you die or move into long-term care. The total you owe can grow quickly because of the compound interest. If you live for many years after taking out the mortgage, you could find the debt eventually exceeds the value of your property. This is called negative equity. To avoid negative equity, you must take out a plan with a lender approved by the Equity Release Council. These lenders offer a No Negative Equity Guarantee. This will ensure you never owe more than your home is worth. An equity release adviser will show you which products protect your estate from additional costs. They will also provide a detailed projection showing how much the plan will cost over your lifetime. That way, you can see the financial implications of any decision you make.
#4 They’ll help you protect your family’s inheritance
If you choose to release equity, you will have less to pass on to your family. Typically, your home will be sold to repay the mortgage. Depending on how much interest has accrued, there may not be much left over. An equity release adviser will explain how to maximise the value of your estate. For example, certain equity release products allow you to ring-fence some of the equity in your home as a guaranteed inheritance. You should discuss your plans with your family before taking out an equity release product. Your family may prefer to help you financially to preserve their future inheritance.
#5 They’ll make sure equity release is right for you
With equity release, it’s important to understand your current needs and your future wants. Using a portion of your property wealth now may reduce the value of your estate in time. This could also affect your entitlement to any means-tested benefits. Equity release advisers will consider all of your options before recommending equity release. You may prefer to downsize. Or use another form of borrowing, such as re-mortgaging your home or
getting help from your family.
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Is equity release right for you?
The Money Guardian can help you decide. Our expert advisers will be glad to guide you through the process and offer no-obligation recommendations. If you do decide to go ahead, we can handle the application and make sure the whole process is as easy as possible for you. Equity release may involve a lifetime mortgage, which is secured against your property. Or a home reversion-plan, which requires the sale of your property for a discounted price. To understand the features and risks, ask for a personalised