Equity Release: Important Considerations Before You Decide
Thinking about equity release? Here's a breakdown of key factors to weigh before moving forward.
How Much Can You Borrow?
The amount depends on your age (over 55), property value (you must own it in the UK), and health.
Lump Sum, Income Stream, or Flexible Access?
Lifetime mortgages are popular and can provide a lump sum, fund a regular income, or a drawdown option where you withdraw ad only accrue interest on what you need. A lump sum suits one-time expenses like home improvements. Regular income helps with monthly bills. Drawdown is ideal if you need smaller amounts now and later.
Understanding Interest Rates
Equity release interest rates are typically higher than traditional mortgages but are fixed for life. If no Interest payments are made (often why people take them out) then interest compounds over time. However, many plans allow regular or optional payments to reduce the total roll up of interest. The loan is typically repaid when you pass away or require long-term care.
Protecting Your Heirs
Equity release can decrease the inheritance you leave behind. However, some lifetime mortgages offer inheritance protection guarantees, ensuring a portion of your property value goes to your beneficiaries. Discuss this with your advisor inheritance is a concern.
Moving After Equity Release
Equity Release Council approved plans allow you to transfer your plan to a new suitable property without penalty, providing flexibility if you need to move.
Right to Remain in Your Home
Equity release plans guarantee you can stay in your home for life, until you die or go into long-term care. Only at that stage will your home have to be sold.
Early Repayment Charges
Lifetime mortgages are meant to be long-term. Early repayment may incur charges (fixed or variable). Discuss this with your advisor if you think you might need to sell your house early.
The Costs Involved
Financial advice fees, lender fees, property valuation, and solicitor fees are involved. Some deals offer incentives like free valuations or cashbacks to reduce these costs. Talk to your advisor about the specifics.