Equity Release.....please release me?
Please release me?
If you’re 55 or over, one of the ways you can get your hands on some extra cash is through equity-release. What this means is that you unlock a portion of your home’s value while still living there. And while this can sound appealing, it’s worth doing your research to make sure it’s the right thing for you.
So, how exactly does it work?
The two ways you can release equity are through a lifetime mortgage or a home reversion. With the first option, you borrow a lump sum (like you do with a standard mortgage) and pay it back when you pass away or go into long-term care.
Home reversion are more like a lease, where you sell all or some of your property for a lump sum or regular fixed income, but stay living in it, until you pass away or go into long-term care. Sometimes these can be transferred if you move house, but you’ll need to check the small print.
Will releasing equity affect the value of my home?
There’ll be no direct bearing on the value of any house or flat for releasing equity, but you (or anyone who inherits your property) won’t get the full value back when it’s sold. You sell a chunk of equity off, so you lose that from the final sale amount.
Are there any advantages to equity release?
The biggest benefit is being able to access money straightaway rather than waiting. You can use the funds for whatever you like too. Another advantage is that you can keep living in your home for the foreseeable future, so you don’t have to think about moving.
There are pitfalls to be aware of too
Of course, it’s not all good. Sometimes the amount owed on the percentage sold off can be a very large sum, especially as house prices climb. And it’ll mean you have less to pass on in your estate. Some home reversion schemes often want properties vacated pretty quickly, which can add to the stress of sorting out funerals etc.
Equity Release will reduce the value of your estate and can affect your eligibility for means tested benefits.
What about costs?
Most lifetime mortgage rates are higher than standard products, and the interest often compounds (where interest is added to the original sum and the interest on top), so it can quickly add up. You’ll have to pay arrangement fees and the usual legal charges too.
Home reversions also have professional fees to find and you’ll be responsible for maintenance costs to the property in most cases.
Are there alternatives to consider?
Instead of equity release, you could consider downsizing. That way, you get to keep all the equity (once the fees have been settled). This is also something to think about if your situation and needs have changed. For example, the kids have flown the nest or health issues mean you might not be as good with stairs as you once were.