What is equity release?
If you, or someone close to you, is a homeowner, over the age of 55, with a small (or no) amount left to pay on the mortgage, and you’re looking to release equity – the cash value between what your home is worth and what you still owe on the mortgage – then it may be worth considering an equity release scheme.
There are a number of different products on the market, all regulated by the Financial Conduct Authority, and we would always encourage you to speak to an independent mortgage expert before making a decision about which one is right for you.
Before we delve into the pros and cons of an equity release, the first question is why, when you’re reaching an age where your mortgage is nearly paid off, would you take out more debt on your property?
Good question. Your property is an asset. By releasing the equity, you’re using your asset to your advantage. Otherwise, it’s just sitting there not really helping you. If the idea of selling your home to downsize isn’t appealing, equity release ensures you stay in your current home and release cash now to help you over the remainder of your lifetime.
Here are a few reasons why our clients consider it as an option:
- The released cash can help children or grandchildren with a deposit for their first home. There’s a common misconception that children will be saddled with their parent’s equity release debts. If managed properly, this shouldn’t happen.
- It can be used to enhance your wellbeing by paying for house alterations, a new car or to fund the bucket list.
- This is a tax-free lump sum. Often customers simply use it to make life more comfortable through retirement. Pensioners shouldn’t have to worry about paying the heating, electricity or phone bill and maybe an equity release scheme can help make life more enjoyable and less stressful.
- With so many of us potentially needing long term care as we grow old, equity release provides an opportunity for care provision based on the wishes of the homeowner.
If equity release products offer this much value, why aren’t more people taking them out? Let’s look at the cons:
- Equity release may not pay the full market value for your home, you will earn more if you sell your home so think through all the options before making a final decision.
- Depending on how you manage your estate planning, equity release may reduce the amount of inheritance passed on to your beneficiaries. This depends on the type of product you select so again, please seek advice from both a mortgage expert and a will writing specialist.
- There may be charges applicable if you decide to pay off the loan early and you should always ensure you know the cost of the product before making a final decision.
- Most lenders won’t offer equity release on properties worth less than £70,000.
On the plus side, the amount you can borrow depends on the value of your home, your age and your current health. Sometimes conditions such as diabetes or high blood pressure and life choices such as smoking, or alcohol consumption can actually increase the amount you can borrow.
Many equity release products now offer a guarantee to ensure your debt is covered should the value of your property fall before you pass away. This ensures no debt is passed on to your beneficiaries.
As with all high-value choices in life, it’s always best to talk to an expert, explain what it is you want from the product and be guided by their advice.
At The Mortgage Expert, we have access to impartial equity release advisers who will help you make the right decisions.
Call us today to discuss your equity release options.