The Pros & Cons of Equity Release
In 2015, record amounts of housing capital were unlocked and released by homeowners over the age of 55, with more than 22,500 deals made and over £1.6 billion made available through specialist equity release plans. Yet equity release is not right for everyone. This quick guide to the pros and cons of equity release will help you decide whether or not it’s right for you.
What is Equity Release
In simple terms, equity release allows older home-owners to release and access the value of their home without having to move out or sell the property.
The two main types of equity release scheme are lifetime mortgages and reversion schemes and it’s important that you choose the option that’s right for you. Withdrawing money from your property can impact on your finances in a variety of different ways, as we shall discuss below, so it’s imperative that you seek expert advice so that you can prepare for any negative consequences.
What are Lifetime Mortgages
Lifetime mortgages are the most common type of equity release scheme. Typically available to people over the age of 55, they enable homeowners to take out a loan on their property in return for a lump sum or regular income, or in some cases a combination of the two. Rather than making monthly repayments, the debt is repaid when you die or move into long-term care.
What are Home Reversion Schemes?
Typically only available to people aged over 60, a home reversion scheme allows you to sell your home – in full or in part – to a home reversion provider. In return, you receive a lump sum or if you prefer, regular payments. When your property is eventually sold, you or your estate will receive the percentage of your property’s value that you still own.
All equity release plans recommended by Acclaimed Equity Release have a no negative equity guarantee, which means you can never end up owing more than your property is worth.
The Pros of Equity Release Schemes
- Equity release schemes allow you to enjoy the value of your property in the form of tax-free income or a lump sum that you can enjoy in any way you see fit.
- You can continue to live in your home for as long as you wish to.
- There are no regular repayments to be made. Rather, the loan will be repaid when the property is eventually sold. However some schemes do allow some repayments of interest if appropriate.
- Depending on the kind of scheme you opt for, it may still be possible for you to leave behind an inheritance for your dependents.
The Cons of Equity Release Schemes
- The overall value of the estate that you leave behind will be significantly reduced.
- Signing up to an equity release scheme can also affect your entitlement to state benefits.
- If you choose to repay the loan early, you may be liable to extra charges.
- The debt will continue to grow over time, and interest will continue to be added – although it is possible to limit this by only releasing money as and when you actually need it.