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Home > What is Equity Release? > Reasons why people release equity from their home
WHY DO PEOPLE RELEASE EQUITY FROM THEIR HOMES?
People choose to release equity for different reasons - from spending the money tied up in their property to creating more options and comfort in later life.
Understanding why people release equity might help you decide if it’s right for you. There are various reasons to consider using the equity from your home, and an adviser will guide you based on your personal circumstances.
Repaying an Existing Mortgage or Debts
Many people use equity release to repay their existing mortgage, this could be an interest-only mortgage that is coming to an end or a standard residential mortgage with monthly repayments. Others choose to use it to repay personal debts such as credit cards or loans, which can reduce or remove monthly outgoings and provide financial flexibility in later life.
If the plan is to release equity for another reason but there is an existing mortgage on the property, this must be repaid first. This can be done using the money released, and the remaining funds are then yours to spend as you choose.
However, it’s important to compare the cost of equity release with other options to ensure it is the best financial decision for your personal circumstances.
Gifting to Family or Friends
Many homeowners want to help their children or grandchildren buy their first home, which often requires a large upfront deposit. Equity release allows them to gift an early inheritance, enabling their loved ones to benefit while they are still alive and when they need financial support the most.
Covering Care Costs
As we get older, we may need help with care, whether in our own home or in a care facility. Equity release can provide funds for this, and a drawdown lifetime mortgage may be a suitable option. With a drawdown mortgage, a pre-agreed amount is set aside in a reserve fund, for homeowners to withdraw if and when needed. Interest is only charged on the amount taken, helping to reduce the roll up of accrued interest over time. Please note, the interest rate you pay later will be whatever the rate is at that time, which could be higher or lower than the rate applied when you first released funds.
Making Home Improvements
Many people have built up equity in their homes over the years. Some may need to make modifications to continue living comfortably, such as adapting bathrooms, or making their home more energy efficient. Others may want to enhance their home for personal enjoyment, such as installing a new kitchen, landscaping their garden, or creating additional living space. Equity release can provide the funds to make these improvements, allowing homeowners to continue enjoying their home for years to come.
Supplementing Income in Later Life
Equity release can help maintain a comfortable lifestyle in retirement, especially if income has decreased. Some people use the money to retire earlier than planned, while others choose to travel, visit family abroad, or purchase a motorhome to explore new places.
It’s important to note that accessing equity from your home may affect your entitlement to certain benefits, both now and in the future. Your adviser will help you understand any potential impact before making a decision.
When Equity Release Might Not Be the Best Option
While equity release can be beneficial for many, it isn’t the right solution for everyone. A key factor to consider is that a lifetime mortgage accrues compound interest, which means the amount you owe can grow significantly over time.
Depending on your financial goals, other options such as government grants for home improvements or benefits for care costs may be available.
Your adviser will explore all available options to ensure that if they recommend equity release, it is genuinely the best choice for your circumstances.
Making the Right Decision
There are many reasons why people choose to release equity from their home. However, an adviser will only recommend this option if they believe it is in your best interest.
Speaking to a qualified equity release adviser is essential, as they will assess your financial situation and help you explore alternative options if necessary. They will ensure you fully understand how equity release works, what it means for you and your family, and whether it aligns with your long-term financial goals.
By getting professional advice, you can make an informed decision that best suits your needs.
Important Information
Equity release may involve a lifetime mortgage, secured against your property, or a home reversion plan. It will reduce the value of your estate and impact funding long-term care.
Equity release requires repaying any existing mortgage. Money released, plus accrued interest, would need to be repaid upon death or moving into long-term care.
Advice is required to proceed with equity release and there may be other options which better suit your circumstances. Only if your case completes would our advice fee of £1,695 be payable. Other lender and solicitor fees may apply.
