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IMPORTANT THINGS TO CONSIDER BEFORE RELEASING EQUITY FROM YOUR HOME
Equity Release is a big decision so here are some things you will need to consider.
What You Need to Consider Before Releasing Equity from Your Home
Releasing equity from your home is an important decision, and it’s not something to take lightly. It’s essential to think about how it could affect your life now and in the future.
Before you go ahead with releasing equity, make sure to have a full discussion with your family and anyone who could be impacted by the decision.
Equity release isn’t right for everyone or in every situation. That’s why it’s important to speak with a qualified equity release adviser before making any decisions.
The Cost of Equity Release
The cost of equity release depends on which product suits your needs and could involve a Lifetime Mortgage, secured against your property, or Home Reversion Plan.
With a Lifetime Mortgage, interest rates will depend on your situation, and how you manage the interest will affect the total cost of borrowing.
For example, if you don’t make any repayments, interest builds up over time. You’re usually only required to pay the accrued interest, along with the loan, when you move into long-term care or pass away.
However, there are plans which allow you to manage the amount of interest you’re charged, by making repayments. This means that when the plan comes to an end, the interest amount you owe may be smaller. You could completely repay the interest over the course of your plan and only leave the initial loan amount to be repaid, when the plan comes to an end.
There are even options allowing you to make further repayments to the loan, reducing the balance of the initial loan amount. However, it’s important to note that repayments are subject to certain limits and early repayment charges may apply above a set value.
How Equity Release Could Affect You Now or In the Future
Releasing equity from your home will impact funding long term care and reduce the value of your estate, meaning you will have less to leave to your loved ones. This is an important consideration, and it’s a good idea to talk it through with your family and beneficiaries so they’re aware and comfortable with your decision.
The extra funds you get from equity release might impact your eligibility for means-tested state benefits, both now and in the future. At Equity Release Associates, we’re not experts in the assessment and calculation of state benefits, so if this is relevant or a concern for you, we’d recommend speaking to a specialist in this area before proceeding with equity release.
You’ll Need to Repay Your Mortgage or Loans Secured Against Your House
If you have an existing mortgage or other loans secured against your home, these must be repaid before or from your equity release funds. In some cases, this might mean you need to borrow more money. Your adviser will help you understand how this works and ensure you make the right decision for your situation.
How Much Should You Borrow?
Before deciding how much equity to release, it’s essential to carefully consider how much you actually need. Due to compound interest, it’s best not to borrow more than necessary, as you’ll pay interest on any extra money you take. The interest rate itself is also determined based on the amount you borrow. For example, if you’re planning home improvements, it’s a good idea to get quotes before speaking to an adviser, so you can borrow the right amount. If you need funds for care over a prolonged period, a drawdown plan might be a good option, as it allows you to take the money as you need it, rather than all at once.
Is Equity Release Right for You?
There are many different equity release products available, and it can be confusing to figure out which one is right for you. This is why it’s essential to speak with a qualified equity release adviser. They will take the time to understand your needs and explain all your options. They’ll help you determine which product suits you best, considering factors such as whether you want to make monthly repayments, or if you could benefit from features like low early repayment charges if you plan to move home in the future.
Alternatives to Equity Release
Before choosing equity release, it’s worth considering other options that might work better for you:
- Reviewing your income and spending: Could reducing your monthly outgoings or increasing your income (for example by taking in a lodger) free up enough money for you to cover your expenses without borrowing?
- Downsizing: Moving to a smaller home could give you a lump sum without the need for equity release. However, remember to factor in the cost of moving.
- Family help: If a family member can provide a lump sum, this could be a more cost-effective solution than releasing equity from your home.
- Using assets: If you have savings, pensions or other assets available, using them could be a better option, as the interest you pay on equity release may be higher than you earn elsewhere.
- Standard mortgage or personal loans: If you have enough income, a traditional mortgage or personal loan might be a more cost effective option, as long as you can comfortably make the monthly repayments.
- Benefits or grants: If you need money for home improvements, there might be grants available to help cover some of the costs. Or if you need help with care costs, you may qualify for certain benefits.
Releasing equity from your home can be a helpful way to access funds, but it’s not the right choice for everyone. By speaking with a qualified adviser, you’ll have the information and support you need to make an informed decision. They will guide you through the options and alternatives, help you understand the potential impact on your future, and ensure that the solution you choose works best for you and your family.
Equity release may involve a home reversion plan or a lifetime mortgage, which is secured against your property and will reduce the value of your estate and impact funding long-term care.
Equity release requires paying off any existing mortgage. Any money released, plus accrued interest would be repaid upon death, or moving into long-term care.
We provide initial advice for free and without obligation. Only if your case completes would our advice fee of £1,695 be payable. Other lender and solicitor fees may apply.
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