Is it right for you?
Advantages and Disadvantages of Equity Release
Many older homeowners are “property rich but cash poor” and equity release schemes – sometimes known as home income plans – can provide a practical solution to that problem.
With every financial decision, you have to make there are always advantages and disadvantages to consider before making your final choice.
Releasing equity from your home is generally seen as a long-term commitment it is not an ideal vehicle for short-term borrowing.
The loan is usually repaid on death or when you enter long-term care, from the sale of the house, so ensure you are happy with this before borrowing.
Although you can repay an Equity Release loan at any time there it is normally subject to an early redemption penalty.
If it is your intention to repay the loan before the end of the term then consider carefully the different products and choose the one with the right early repayment options to meet your needs.
Some Equity Release schemes allow you to make monthly, ad hoc or partial repayments, if you intend to make repayments or want flexibility, make sure you choose the right plan to meet your requirements.
Our advisers are here to help you make an informed decision and will tell you straight away if equity release isn’t right for you.
What to consider before you take out an equity release plan.
The Advantages
- Right to remain in your home – under ERC rules this feature enables you to live in your home rent free for the rest of your life. This will be either until the last person has died or moved into permanent residential care.
- No monthly payments are required – most lifetime mortgages & all home reversion plans have little impact on your budget, as the lenders require no monthly payments towards the interest charged.
- A no-negative equity guarantee – provides the assurance that no matter what, with roll-up equity release schemes, you can never end up owing more than the value of the property.
- Provides tax-free cash or income – equity release helps support you financially throughout retirement, enabling you to spend the proceeds on anything to make life that ‘little more enjoyable’
- The flexibility of modern equity release plans means that you can release the money as a lump sum, or a lump sum with a drawdown facility.
The Disadvantages
- The value of your estate will reduce and the amount you can pass on in inheritance via your estate will, therefore, also decrease.
- Your entitlement to certain state benefits may be affected.
- If you want to repay or end the plan early there may be financial penalties in doing so.
- Lifetime mortgages are paid back with compounded interest meaning that over the longer term the amount you owe can grow quite quickly.
- You should always consider the alternatives. Equity release is just one possible option for acquiring tax-free money from your home; downsizing or taking on a lodger are two other options.
- Difficulty remortgaging – upon completing a lifetime mortgage or home reversion, you have secured a loan on your property. This may restrict your options to raise additional finance moving forward.
The information above relates to generic equity release advantages & disadvantages. Different types of equity release schemes have their own individual pros and cons & are discussed under the relevant product sections.