Are you looking to access the equity in your home without having to move out? Equity release is becoming an increasingly popular option for those over the age of 55 who are looking to release funds from their home. Equity release could be a great option for you. Before you take out a plan, read these 4 little known truths about equity release.
While these plans offer access to funds that can help with a variety of financial goals, there are often little known truths about equity release.
However, there are some things that you should know before deciding if it’s the right choice for you.
Here are the 4 little known truths about equity release that may help inform your decision. Keep reading to learn more.
What Is Equity Release?
Equity release is a way of accessing the money tied up in your home without selling it. This can be done through a lifetime mortgage or home reversion plan.
With a lifetime mortgage, you borrow against your property and use the money for whatever purpose you choose.
As with any mortgage, you must repay regularly until the loan is paid off. With a home reversion plan, you sell all or part of your home in exchange for a lump sum of money.
Here are the following 4 little known truths about equity release:
1. Not all equity release plans are the same:
When it comes to equity release, not all plans are created equal. For example, some plans limit the amount of money you can borrow, while others may require that you meet specific eligibility criteria.
Different plans also have variable interest rates and repayment terms, so it’s essential to research before committing to any plan.
Furthermore, some plans require regular repayments, while others allow you to make lump sums when it suits you.
Be sure to consider all of these factors before choosing a plan.
2. You don’t have to be retired:
Many people think you have to be retired in order to access equity release, but that is not the case. In fact, you don’t even need to be close to retirement age.
Equity release is available to people of any age, as long as they are over 55 and own their own home.
This means you could potentially release equity to pay for home improvements or even to fund a new business venture, rather than waiting until retirement.
3. Remain in your home until you die or move into long-term care:
The third truth about equity release is that you must remain in your home until you die or move into long-term care.
Equity release products are designed to help you access your home’s equity without needing to move.
This means you will remain in your home for the duration of the loan, and you may be able to transfer the loan to another property if you decide to move.
This is subject to the lender’s criteria. It’s important to remember that equity release loans are designed for those planning to remain in their homes until they die or move into long-term care.
4. Keep Ownership of Your Home:
One of the most important things to remember when considering equity release is that you always keep ownership of your home.
This means you can remain in your home for as long as you wish and don’t have to worry about being evicted or moving out.
This allows you to stay in your home as long as you want and enjoy the benefits of your accumulated equity. It also allows you to pass on your home to your beneficiaries.
Some more truths about equity release:
Equity release plans can affect inheritance plans:
One of the most important considerations regarding equity release plans is the potential impact on inheritance plans.
Equity release plans are typically used to access the wealth stored in a home, but if these plans need to be appropriately structured, they can affect the size of an inheritance.
This is because any money released from the equity in a home is not typically reinvested, meaning that the estate’s value is reduced.
Therefore, if a plan is structured such that the money is paid back after the person dies, it can reduce the value of the estate and the amount of inheritance left to family and friends.
Payments can be made in a lump sum or regular instalments:
It is possible to make payments for equity release plans in either one lump sum or regular instalments.
One method may be more viable depending on the individual’s situation and preferences.
Paying in a lump sum is generally more beneficial to the individual as the interest rate may be lower.
In contrast, regular instalments may benefit those who cannot make a large one-time payment.
It is important to remember that the more payments the individual can make, the less interest they will accumulate in the long run.
Equity release plans can affect your entitlement to state benefits:
When you take out an equity release plan, it is essential to be aware of how it may affect your entitlement to state benefits.
Generally, any money you receive from the plan will be considered when calculating your entitlement to certain means-tested benefits such as pension credit.
To be clear, your State Pension would not be affected by any decision to take equity release.
If you are already receiving benefits, seeking advice from your local authority before entering into an equity release plan is essential.
It is also important to note that if you have dependent children, you may have to pay additional costs due to the plan.
Taking out an equity release plan can also affect your inheritance tax liability and other taxes, such as income or capital gains tax.
Not all property types are eligible for equity release plans:
Not all property types are suitable for equity release plans.
For example, while most traditional home types are accepted, specific properties such as listed buildings, flats, and properties in particular locations, such as those in high-risk flood areas, may not be eligible.
In addition, some equity release providers may offer plans to those with non-standard properties.
However, they may be limited or have different terms and conditions.
Therefore, checking with the provider or a mortgage adviser for more in-depth information is essential to avoid disappointment.
Final Thought:
Equity release can be an excellent solution for people seeking extra financial support during retirement.
However, it is essential to understand the risks involved and to take the time to research the different options available.
By doing so, you can make sure you are making the most informed decision and that the equity release solution you choose is best suited to your needs and circumstances.
