Is equity release a good idea?
If you’re a homeowner aged 55 or over who wants to raise some capital you might have been wondering whether equity release is a good idea.
Equity release allows you to access some of your property’s value without having to downsize or relocate. However equity release is not the right option for everyone and it will decrease how much you can leave to your beneficiaries.
By filling in the form you can get in touch with an independent equity release specialist who can give you quotes from a range of equity release products and a free initial consultation. Click here for Quotes and Advice »
What equity release schemes are there?
There are two different types of equity release plan; lifetime mortgages and home reversion schemes:
A lifetime mortgage works by taking out a loan secured on your home. Instead of making monthly repayments on the loan like a normal mortgage it is repaid through the sale of your property when you either die or permanently move into a residential care home. You remain the homeowner until the end of your contract with this type of equity release.
There are three key types of lifetime mortgage:
- Roll-Up mortgage – With this plan there are no monthly or annual repayments, instead the original amount borrowed and its accumulated interest are repaid through the sale of your home. As interest is usually compounded on this type of plan the amount of interest owed can increase rapidly. However if the plan has a ‘No negative equity guarantee’ this means that you or your estate will never be charged more than the amount the property eventually sells for even if that’s less than the amount owed.
- Interest only mortgage – This type of plan gives you the flexibility to pay off the interest on your loan but the original amount borrowed is still paid off through the sale of your home.
- Fixed repayment – Fixed repayment plans incur no interest; instead at time of set up you agree with the lender on an amount you will repay that is higher than the sum you borrow. This amount is still repaid through the sale of your home.
The other option for equity release is a home reversion scheme, in these plans you sell your home, or a portion of it, to a reversion company or individual for less than its actual market value. They in return will give you a lump-sum payment or a regular ‘income’ and guarantee you the right to continue living in your home until you die or permanently move into care at which point they will sell the property.
Some plans require you to make monthly rental payments, although at a reduced rate to what a normal tenant would pay, others will let you continue to live there for free.
You need to remember with a home reversion plan that you need to keep the property in good condition and that the reversion company may occasionally inspect the maintenance of the property.
When considering if equity release is right for you should consider some of the costs involved. Most providers of either type of equity release will charge some arrangement and administrative fees; this amount varies by lender and plan type but can be expensive, as well as a fee for the property valuation. Some lenders will waive these fees initially and instead deduct it from how much you want to borrow or take them into consideration when they calculate your interest rates. You will also need to pay legal fees to your solicitor.
Therefore it may not be wise to use equity release to borrow small amounts, as the fees could end up costing you more.
Equity release is a lifetime commitment and therefore you should evaluate all of your options before committing to find out if it is best for you.
Another way to access some of the money tied up in your home is to downsize or move to a more affordable area. You could also check if there are any benefits you are entitled to that could supplement your income.
Find out more
When you deciding if equity release is right for you or not, you should look at everything available as the terms and conditions of different equity release products can vary greatly from plan to plan. To find out more about the different types of equity release and if there is one right for you simply click on the link and fill in the quick form and an equity release specialist will get back to you with free, no obligation quotes and advice.