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What Are the Benefits & Drawbacks of Equity Release, & Is It a Good Idea?

ByHayley

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piles of coins, wooden house and keys

As you get older, you may discover that you need to supplement your income. 

One option is to withdraw some money from the value of your property while continuing to live there. This is referred to as equity release. 

Equity Release Specialist, Jason Stubbs, guides us on the benefits and drawbacks of equity release to assist you in answering the crucial question: is equity release a good idea?



What’s Equity Release?

Equity release is converting your home’s equity into cash that you may spend without having to sell it.


How Does Equity Release Work?

You may release equity from your house in two ways: by taking out a loan against a portion of it with a lifetime mortgage or by selling a portion of it with a home reversion plan.


Pros of Equity Release

Here are the main benefits of equity release:

  • A lifetime mortgage allows you to access the equity in your property either in the form of a cash lump sum or in a series of flexible payments while still maintaining complete ownership.
  • Lifetime mortgages with a No Negative Equity Guarantee assure you will never owe more than the value of your house.
  • You can continue to live in your house for the rest of your life
  • You’re not required to make any repayments until you die or enter long-term care.
  • Unlike a home reversion plan, where you sell a piece of your house upfront, a lifetime mortgage allows you to keep ownership and ultimately benefit from future rises in the value of your property.
  • Equity release can lower the value of your estate, which can help you save money on Inheritance Tax.

Cons of Equity Release

  • The interest on a lifetime mortgage can roll up, meaning that a 4.1% compounded yearly rate on a £100,000 lump amount would add £55,000 in interest expenses over ten years.
  • Lifetime mortgages often include lender and solicitor costs and a charge paid to the equity release expert who advises the program. Expenses for equity release might range between £2,000 and £3,000.
  • If you opt to repay all or a portion of your loan early, you may be charged an Early Repayment Charge.
  • The funds released from your house through a lifetime mortgage may influence your eligibility for means-tested state subsidies.


Am I Protected When Using Equity Release?

The Equity Release Council was formed to safeguard individuals from being taken advantage of by these programs. 

Any equity release firm that uses the Equity Release Council emblem must ensure that you may continue to live in your house until you die or transfer into permanent care. 

They must also guarantee that you will never owe them more than the total sale price of your property, even if its value declines. 


Is Equity Release a Good Idea for Me?

Yes, it might be a wise financial move if you want to earn tax-free money without making monthly payments. However, it may not be ideal for you if you wish to leave a substantial legacy to your heir as equity release reduces the size of your estate.

Conclusion

There is nothing more distressing than financial worries. In your retirement, the last thing you want to worry about is balancing limited cash while meeting home expenditures.

Equity release is a terrific strategy to ensure that you have enough cash during your retirement, and you may still take up a plan to leave your family inheritance if you desire.

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