If you’re 55 and over, strapped for cash or simply looking into a more comfortable retirement, own your home and have no desire or intent to move, equity release may be your easy solution for some extra money.
Before you dive right in, let’s run a few key points for you to consider:
- Equity release can turn out to be more expensive as compared to an ordinary mortgage. A lifetime mortgage may charge you a significantly higher interest rate versus an ordinary mortgage, increasing your debt if the interest is rolled-up (it gets added to the loan amount). It is worth pointing out house price growth might also be evident. Your plan provider needs to factor in the safeguards they are providing you with (such as the no negative equity guarantee that ensures you can never owe more than the value of your home, so, even if house prices go down, you won’t lose out; along with a fixed interest rate for the life of the plan) in their calculations and can, therefore lend you at a different interest rate to an ordinary mortgage.
- For lifetime mortgages, there is no fixed “term” or date which means you are not obliged to make any monthly repayments unless you want to. The interest rate of a lifetime mortgage will not change during the life of your contract, unless you take any additional releases and it will only apply to that cycle of extra borrowing.
- Home reversion plans will usually not give you anything close to the true market value of your home as compared to putting up your property on the open market.
- Releasing cash from your home will reduce the value of your estate, affecting its reliability later in your retirement. This also means that should you decide to downsize later on, you might not have enough equity in your home to do it and you’ll have to repay some of your mortgages.
- The money you receive from equity release might affect your entitlement to state benefits like pension and savings credit.
- You will have to pay arrangement fees, which can reach approx. £1,500-£3,000 in total, depending on the plan being arranged.
- Taking up an interest roll-up plan blows up the loan amount. When you move out permanently or pass away, proceeds from your property will be used to repay the provider first leaving less to be passed onto your family as an inheritance.
- These schemes can be complicated to unravel if you change your mind, including early repayment charges which tend to be expensive (though not applicable should you move into long-term care or die).