Is equity release a good idea?
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EQUITY release allows homeowners aged 55 and over to unlock the equity that has built up in their homes as tax-free cash. But is equity release a good idea for you?
It may allow you to unlock from a minimum of £10,000 up to 53% of the value of your property – providing it is worth at least £70,000.
The exact amount of money that you can access is based on the age of the youngest homeowner, the value of your home, and your individual needs.
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What are the advantages of equity release?
It can be a flexible option with many different plan features to suit individual needs and requirements. For example, you can choose how you take the money you release, either as a lump sum or in smaller amounts over time.
One of the main benefits of equity release for many people is you’re not required to make any repayments if you don’t wish to, as the money you unlock, plus accrued interest, is repaid when you die or move into long-term care.
Plus, with a lifetime mortgage, the most popular type of equity release plan, you continue to own 100% of the home you love.
Another advantage is that the money you unlock can be used for a variety of reasons; a new car, holiday, or even providing a financial gift to loved ones. As long as any existing mortgage is repaid first, the money is yours to enjoy spending.
Plans which meet the Equity Release Council’s standards feature a no negative equity guarantee. This means that your estate will never owe more than the property is worth when it is sold.
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Dangers of equity release
EQUITY release can be a good way to unlock cash in retirement - but there are some dangers to consider, according to The Sun's Tara Evans.
Interest rates on lifetime mortgages are around 5.5%, with some topping 8%. This means they can be more expensive than a traditional mortgage and you should always consider downsizing first.
You could end up owing more than you borrowed, although it will never be more than the value of your home.
Using equity release to take cash from your home will reduce the assets you have to pass on to loved ones when you die.
It is a long-term commitment and you may be charged an early redemption fee that can be as high as 25% if you want to pay it off.
Be aware that equity release could affect or stop your benefits.
Always seek advice from a qualified equity release adviser.
What are the drawbacks?
With , interest can build up over time on the amount you borrow which can be a significant amount.
With a lump sum plan where you take all the money in one go, you know exactly how much this will be when you take the loan.
With a drawdown plan, where you take the money in smaller amounts over time, you only pay interest on the money when you withdraw it, and the interest rate is typically the current rate at the time the funds are drawn.
could increase your income enough to make you ineligible for means tested benefits, now or in the future.
Equity release may involve a home reversion plan or a lifetime mortgage, which is secured against your property and the value of your estate will be reduced. This means that there will be less wealth to pass on to loved ones, and funding long-term care will be impacted by releasing the money tied up in your home.
can be complex, and it is a long-term financial commitment so it’s important to get the right advice.
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Is equity release a good idea for you?
It’s important to carefully consider the impact of equity release on your individual circumstances when evaluating if it is a good idea for you.
Advice is required before proceeding with equity release and a specialist advisor, such as those at, can talk you through the different options to help you find out if it could be right for your individual needs, or if another option could be better.
Initial advice is provided for free and without obligation. Only if your case completes would an advice fee of £1,895 be payable. Other lender and solicitor fees may apply.
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What steps are involved?
The first step is to speak to an advisor.
Advice is required before proceeding with equity release, this is where an advisor such as myself will be able to talk you through all the different features so you fully understand what your options are, and which plan could be right to help you top up your pension income.
Through , you can have an initial, free, no-obligation consultation to discuss your needs and answer any questions.
Only if your case is completed would an advice fee of £1,895 be payable. Other lender and solicitor fees may apply.
The next step is to get a personalised recommendation document, which your advisor will put together, detailing what you have discussed.
If you decide to proceed, your advisor will help take you through the process, and once complete you will receive the funds straight into your bank account.
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