You may want to consider using an equity release plan to unlock some of your property wealth, while continuing to live in your home. Before doing so, though, it’s vital to consider the pros and cons of this approach and to seek professional advice from a qualified equity release adviser who belongs to the Equity Release Council (the trade body for the equity release sector).
The most popular type of equity release plan is a ‘lifetime mortgage’. With a lifetime mortgage, you can usually either take a lump sum, or draw down funds as and when you need them, for example, if you want to regularly top up your income. As with other types of equity release plan, interest on the amount you release rolls up over time, instead of being paid monthly like a standard mortgage, although some lifetime mortgages enable you to repay the interest to stop it accumulating over time. Usually, however, the loan, and any interest owed, is only repaid when you sell your property, pass away, or move into long-term care. Find out more in our article Lifetime mortgages explained.
Desor says: “Some interest rates are quite low at the moment, at around 3%, which may enhance the appeal of equity release. It’s certainly an option if you don’t ever plan to downsize, but you have to be careful as there are pitfalls. It’ll reduce the amount you have to pass on to your family, and interest charges build up.” Bear in mind that even with a low rate such as 3.5%, your debt will double over 20 years.
However, provided you seek professional advice and use a provider that belongs to the Equity Release Council, which offers customer safeguards, equity release can be the right choice in some scenarios. Read more in our guide Equity release – what is it and how does it work?
Some pros of equity release
You can stay in your home and avoid the expense and stress of moving.There’s no need to repay capital or interest during your lifetime.You can use the money released however you like, for example to boost your pension income, or cover unexpected expenses.
Some cons of equity release
Interest charges soon mount up due to compounding (when you pay interest on top of the interest you’ve already been charged) and may be more than expected. Have a look at our compound interest calculator to understand how much a lifetime mortgage might cost you over 10, 20 or 30 years.Taking a lifetime mortgage will reduce the value of your estate, and see your family potentially owe a large lump sum to the equity release provider when you pass away.The amount of inheritance your family receives may be smaller as a result.Using equity release could potentially impact your entitlement to state benefits. For more information on this, have a look at our article How lump sum payments and savings can affect your benefits.
We have partnered with Key Advice Group, a member of the Equity Release Council who have an excellent customer service rating on Trustpilot. If you are interested in a free, no obligation conversation with one of their equity release specialists to see whether equity release might be suitable for you, you can request a free callback here.