Equity release is a valuable tool that can help you free up cash from your home in retirement. Some retirees need more money to meet living costs, others use equity release to buy a second home.
Here are five reasons you should seek equity release advice:
1. There is a huge variety of products available
Due to rising demand, the number of equity release products on the market has increased dramatically in recent years. By seeking equity release advice, you can find the product that suits your needs.
Equity release products can be split into two broad categories: lifetime mortgages and home-reversion plans.
A lifetime mortgage comes with a fixed interest rate. Unlike a conventional repayment mortgage, you don’t pay it off in regular instalments. Instead, your debt is rolled up, which means your interest is calculated on an ever-increasing total and you only pay off your mortgage when the property is sold.
In a home-reversion plan, an equity release company buys a fixed share of your property from you and waits for the value of that share to increase.
When you seek equity release advice, your adviser will explain the difference between the products and recommend the best option for you.
2. Equity release advice can save you money
Equity release advice can help you find a mortgage with the most competitive equity release interest rate and the lowest charges.
For example, some equity release products charge you for early repayment. If you find a product with no early repayment charge, you can downsize and pay off the mortgage penalty-free.
Other products allow you to make monthly or ad-hoc interest repayments to keep the total debt down. You can also choose a drawdown product that drip-feeds the equity in stages, so you only pay interest on the amount you have used.
An adviser can suggest ways to cut your costs and find products with the right features for you.
3. The cost of equity release can be high
The compounding effect of the interest means that the total owed can grow quickly. If you live for many years after taking out the mortgage, you could find the debt eventually exceeds the value of your property. This is called negative equity.
To avoid finding yourself in negative equity, it is vital you take out a plan with a lender approved by the Equity Release Council. These lenders offer a no-negative-equity guarantee, ensuring you never owe more than your home is worth.
An equity release adviser can recommend the products that protect your estate from additional costs. They will also provide a detailed projection showing how much the plan will cost over your lifetime, so you understand the financial implications of your decision.
4. Protect your family’s inheritance
If you take out an equity release product, you will have less to pass on to your family as an inheritance. Your home will usually be sold to repay the mortgage and, depending on how much interest has accrued, there may not be much left over.
An equity release adviser will explain how to maximise the value of your estate. For example, some equity release products allow you to ring-fence some of the equity in your home as a guaranteed inheritance.
You should discuss your plans with your family before taking out an equity release product. Your family may prefer to help you financially to preserve their future inheritance.
5. Equity release may not be suitable for you
An adviser will consider all your options before recommending equity release. You may prefer to downsize or use other forms of borrowing such as remortgaging your home or getting help from your family.
When releasing equity, it is important to understand your current needs and your future wants. This is because using a portion of your property wealth now may reduce the value of your estate in time and could affect your entitlement to means-tested benefits.
If you think equity release may suit you, the Telegraph Media Group Equity Release Service can help. An expert adviser will be glad to guide you through the process and offer recommendations in a no-obligation meeting. If the adviser recommends a product and you decide to go ahead with it, they can handle the application with your provider and make the process as easy as possible.
- Find out how much equity you could release from your home with The Telegraph’s equity release calculator.
The Telegraph Equity Release Service is provided by Responsible Equity Release. Responsible Equity Release is a trading style of Responsible Life Limited. Responsible Life Limited is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register (https://register.fca.org.uk/) under reference 610205. Only if you choose to proceed and your case completes will Responsible Life Limited charge an advice fee, currently not exceeding £1,490.
The above article was created for Telegraph Financial Solutions, a member of The Telegraph Media Group. For more information on Telegraph Financial Solutions click here.
Information correct at date of publication.