The Ultimate Guide to Equity Release

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Equity release is an option that many people approaching retirement consider. But surprising amounts of people that take out equity release plans don’t fully understand what it is and how it can affect your future.

In short, equity release is a way for people aged sixty or over can use their home to receive a lump sum of money, or generate a future income. Normally the older you are the better the deal you can receive, as it is dependent on life expectancy.  

You can either receive funds by taking out a loan against your home, or by selling part or the whole of your property. The difference with equity release is that you continue living in your home during your remaining years.

Not everyone is eligible to participate in equity release schemes. There are certain requirements you must fill. For example you must own your home, you home needs to be of a certain value, and there is a minimum amount of money you need to borrow.

To make sure you get equity release rather than equity constraint, it is imperative that you seek independent advice so that you understand both the legal and financial aspects.

In order to give you some insight into elements you should consider before taking out an equity release plan, take a look at our suggestions below.

1. Secure your income

As equity release is a way of securing funds against your home, you need to ensure that this is what you will receive. Many people choose to use equity release like an annuity so that they are provided with a regular on-going income. If you choose this option, make sure you know whether that income is fixed or flexible. The initial amount you receive might be fine for the first five to ten years, but how will it stand up against inflation later down the line?

2. Hidden Costs

You might be so focused on releasing the money contained within your property that you could become blind to the costs associated with equity release. Before choosing a provider, check what fees are connected to setting up a plan. Unforeseen costs may come in the form of administration, arrangement and completion. These fees may or may not cover valuation costs and solicitors’ fees.

3. Buying a new home

Depending on your circumstances, you may need to make changes in your life. Health issues may necessitate moving into a smaller home. Although this is generally allowed, if your new home is worth less than the property used in the equity release, you will need to pay back either part or all that you have borrowed. If the scheme can’t be transferred, you will need to pay back the whole amount.

4. Change in circumstance

By participating in an equity release plan you may no longer be eligible for assistance if you ever need to move into a care home.

Alternatively, if a relative moves into your home to care for you, if you die the home would still need to be sold. Likewise, if you get married and the scheme cannot be transferred into their name, the house will be sold upon your death.

We hope that you thoroughly investigate all the aspects of your equity release before making a final decision.

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