Equity release is an option to consider if you are 55+ and looking for a cash sum as it enables you to release funds from the value of your own home without making monthly repayments.
The scheme has certainly come a long way from its early days, with significant innovation in the products now available providing customers with more control, lower interest rates and greater peace of mind. Thanks to improved features such as drawdown options, fixed rates, early repayment and negative equity protection, equity release is also proving increasingly popular, with over 45,000 householders taking advantage of the scheme last year.
We explore whether equity release is a good idea and why getting the right financial advice before you decide is essential.
What is equity release?
Simply put, equity release is a way of accessing some of the cash value – or equity – in your property, so you have a lump sum without monthly repayments. It also means you can continue to live in your home as the money is only repaid, with interest, when your house is eventually sold, should you die or go into care. You must be 55 or over to take advantage of the scheme and your mortgage doesn’t need to be fully paid off to be considered. However, opting for equity release is a major financial decision and should never be taken without the right independent advice.
Why it could be a good choice to consider
Equity release could be a good option if you are wanting to unlock tax-free cash from the existing equity in your home, without having to worry about making monthly repayments. People consider equity release for a host of reasons, including paying off debts, making home improvements or to boost income for a more financially comfortable retirement. However, you need to take into account how it could potentially affect your family’s inheritance and any existing benefits you are entitled to as well as the higher interest rates. Equity release is just one option to consider when it comes to releasing money from your home, which is why you should always get the very best financial advice before you decide.
Equity release options available
When exploring your options, there are two types of equity release to consider – Lifetime Mortgage and Home Reversion:
- Lifetime Mortgage is the most common equity release where you borrow some of your home’s cash value at a capped or fixed interest rate; you don’t make any repayments and there is no fixed ‘term’. The capital plus interest is repaid on death or long-term care and you can also choose a drawdown option where you take the cash out of your property in stages rather than in one lump sum. The interest compounds over time, so it is important to get the right independent advice. You can also choose to make repayments or ringfence some of the property’s value for family members to inherit.
- Home Reversion is where you sell part or all of your home to your equity release provider, in return for a cash sum or regular payments. You then live in the property, ‘rent-free’ until you die or when the property is sold, and the proceeds are split as per the percentage agreed between you and the provider, based on the final sale value. Home reversion accounts for less than 1% of the whole equity release market in the UK.
Deciding whether equity release is for you
Regulated by the Financial Conduct Authority (FSA), as well as the industry’s own governing body, the Equity Release Council, there are many safeguards in place that make equity release increasingly popular amongst today’s householders. These safeguards include a guarantee that you will not go into negative equity, which gives applicants that extra peace of mind.
However, when looking at releasing the equity in your home, you need to ensure it’s the right option for you. Before you sign on the dotted line, discuss the reasons why you want to release funds with your independent financial adviser as well as with your own family. Reasons to consider equity release include not wanting to – or be able to – downsize your home, having no other alternative funds to cover what you need the money for, having no beneficiaries or that you don’t mind reducing the amount of money your family will inherit.
The right financial advice is essential
If you are considering taking out an equity release product, your first port of call should always be an independent financial adviser who will guide you through the process and ensure that it is the right thing for you to do. At Reynolds Financial, we will take you through all your options as well as the products available so that you are clear on all the facts, options available and the implications of choosing equity release.
And if you then do decide to opt for equity release, you can confidently enjoy the financial benefits of releasing funds from your own home, knowing it was the right decision for you.
For further information on our Equity Release Advice Service call us on 01633 838097 or complete our online contact form.