We rely on advertising to help fund our award-winning journalism. The Top 3 … If you do want to leave your property, then there may be alternative ways to raise the money you require. Interest rates can be as low as 3.4pc and are usually fixed for the life of the loan. If your home has increased in value over the years, equity release enables you to get at some of that money to supplement your retirement income – instead of leaving it all to your beneficiaries, or to cover your long-term care costs. You could also consider paying off the interest as you go, so it doesn't compound. 1. They must also ensure that you will never owe them more than the total sale price of your home, even if its value drops. Your adviser can also find the best one for you from the whole of the market and set it up for you. The most common form of equity release is a lifetime mortgage that isn’t paid off until you die or go into long-term care. This ensures that borrowers know in advance how much will be owed in the future. Telegraph Money asked Alan Lakey, an independent financial expert who advises on equity release, for guidance on the good and bad. Try our calculator to find out", "See how much cash you could release from your home". Unlike residential mortgages, where a borrower pays off the interest charges each month, the interest on equity release loans is usually added to the overall debt. The loss of benefits may make equity release poor value for you. Your equity is the total market value of your home, minus any mortgage you haven’t yet paid off. How we can help you with your Equity Release. … What are the risks and pitfalls of equity release? The home will also have to be vacated very quickly after your death, often within a month. You also need to make sure that your home reversion contract allows you to move home, if necessary, and that there are no elements of the contract that could cause you unwanted problems or expenses further down the line. Borrow in stages selling their home privately at a discount in exchange for lifelong tenancy rights, Your other savings and/or sources of income will not be enough to meet your needs in, An independent financial adviser has told you this option is best for you, You can meet your income needs in retirement from other sources, You have the opportunity to release money from your home by downsizing, You want to preserve as much of your estate as possible for your family to inherit, An independent financial adviser has told you this option is not the best one for you. While rates are the cheapest they've been in years, equity release itself is still an expensive and risky way to raise cash. We are a firm of Independent Financial Advisers (IFA’s). Last year, 23% of retired homeowners who took out an equity release plan said lending to their loved ones was their motivation. And in the first six months of this year that rose to 31%. Ask both a financial adviser and a solicitor to study the contract for you to ensure that it is in your best interests. Things you need to know about equity release. These challenges could be causing some advisers to shy away from equity release. Whether equity release is right for you or not will depend on your circumstances. It is possible to cut out the middle-man and set up your own equity release arrangement. Even better, go over all your future plans with your adviser at the start, so you’re less likely to change your mind. You can choose to end your lifetime mortgage early, but this can cost you. Make sure the provider you use belongs to the Equity Release Council, so you are protected from pitfalls like negative equity. With any form of equity release, have your independent financial adviser or mortgage broker explain the risks to you in detail, including how much it could cost your family in the long term, and whether downsizing might be a better option. If you are receiving any benefits in addition to the state pension, check how these might be affected if you were to use equity release. 4. Equity release is often the only method available for older people to extract funds from their property without downsizing or selling. So I'll quickly run you through the key points you need to consider. The money you receive from a lifetime mortgage loan is tax-free. For more information or speak to an Equity Release mortgage adviser call us on 01628 507477 . This “rolling up” means that the interest compounds, growing rapidly. All reputable providers are members of the ERC, and all members must adhere to an official Statement of Principles that defines the ERC’s purpose. Equity release is a way of freeing up the money in your home without having to move. Their advice is also regulated by the FCA, which gives you an additional layer of protection. For example, borrow £20,000 aged 65 at 6.5% on a £120,000 home and live 25 … The reverse mortgage is a form of equity release that is available in Australia, Canada, the United States and the United Kingdom. This means that if the worst happened and the property value dipped below the amount owed, there is no loss to the borrower as the lender absorbs this risk and will not ask the borrower or their estate to meet any shortfall. Because who’d willingly want to make a non-informed financial decision based on their biggest asset that takes decades to pay off? This means that the advice we offer is unbiased. However, releasing equity may not be a good idea if you don’t like the idea of your family’s inheritance being affected. The choices open to homeowners are certainly growing. The main disadvantage of equity release is that it does not pay you the full market value for your home. Equity release might seem like a good option if you … Find the right adviser fast with our matching technology. Am I protected when using equity release? Costs can include: These costs can vary, but you should allow for around £3,000. Latest news December 2020: Equity release interest rates are at their lowest ever & will be fixed for the rest of your life - LATEST OFFER 2.22% AER through Age Partnership when you use our calculator Best quote guaranteed or receive £500. If you’ve simply changed your mind, it’s important to speak to a financial adviser as soon as possible to work out the most cost-effective way of organising your finances. We’re not saying equity release is a bad idea, it’s a viable option if you need the funds, but just like any debt it needs to be manageable, and you need to … Whether it’s a good idea or not, depends on a number of factors, so the most suitable answer is – it depends. This is the most popular type of equity release. Check your benefits situation As with all financial situations, everything is personal making equity release a potentially good idea for some people. And where can I find unbiased equity release advice that I can trust? Some borrowers who took out plans in the 2000s, with rates often upwards of 7pc, are now paying five-figure sums in interest charges each year. Thus equity release is particularly useful for elderly persons who do not intend or are not able to leave a large estate for their heirs when they die. The amount of equity you can release depends on your property value and any outstanding mortgage or debt. This is known as equity release. Whether or not it’s the right tactic for you will depend on your plans for your cash and your financial situation. If you do want or need some extra money around the place and you don’t want to leave your property intact to your beneficiaries, then equity release is a good idea. Your financial adviser or mortgage adviser can help you decide whether an equity release scheme is appropriate, or whether you should consider other options such as downsizing instead. You’ll have to tell your equity release company so that they can decide if your new home is similar in value. The specific risks vary with the type of scheme you choose. But just how safe is hollowing out the value of your home? You may have read mixed reviews about equity release. Equity release interest charges: how much will my loan really cost me? Whether you sell all or only part of your home, you won’t receive full market value for it, so bear this in mind when making your decision. It can be particularly useful for covering large expenses later in life, such as long-term care. Be sure also to check out sovereignboss and see how much equity you can release with the equity release calculator. If you do take one out, you should consider checking to see if you can get a better deal once the early-repayment charge period has ended. You also have the right to ask a solicitor to check all the documents before signing up to a scheme. This way you will not be paying interest on the whole sum for the whole period of time, so the amount you end up owing will be less. You may have read mixed reviews about equity release. Let us match you to your perfect financial adviser. This is a good reason to be cautious of lifetime mortgages if you hope to leave a good inheritance for your family. With a home reversion scheme, you sell all or part of your property, but with a legal right to continue living in it until you die or move into long-term care. What does it cost to set up equity release? Equity release is a way of spending your home’s value whilst you’re still living there. As most schemes offer a roll-up of interest it means that no payments are made by the borrower. Retirees gift £500m to help relatives through Covid cash crisis, Retirement plans in jeopardy: equity release could be blocked if house prices crash, Cashing in on house price boom? Read on to find out more about these different types of equity release. Choose the right form of equity release for you and your family Equity release won’t necessarily be a good idea for everyone, but for some people, it can be an effective way to unlock cash they have tied up in their property. See the examples below. Equity release is not a scandal – although it was back in the late 1980s when companies such as Fisher Prew Smith (long defunct) fleeced borrowers, and some lenders went on to … Is equity release a good idea or safe? Use an accredited provider EQUITY release schemes were today labelled 'the lifestyle dream that can turn into a nightmare'. However, this could still mean that all the property’s value is used up in paying off the mortgage. As of August, 139 equity release schemes were available to consumers, more than double the number (58) seen two years ago, according to the Equity Release Council. To explore the possibilities of whether it’s right for you, you need to think in the long-term and much farther than a five, ten or even 15-year financial plan. Another good reason to do this is that your money is better off invested in your home (where it is likely to grow) than in a cash bank account. 3. If you choose not to pay off the interest as you go, you will have an ‘interest roll-up mortgage’. The two popular types of equity release are. Is equity release a bad idea? Look at alternative sources of income, such as downsizing or renting out a room. What are the advantages of equity release? In recent years, there have been a number of changes to many equity release products to provide greater flexibility and enhance the protection they provide. The minimum age for a home reversion scheme may be 60 or 65. Any equity release company that has the Equity Release Council logo on their material must ensure you can still live in your home until you die or move into permanent care. Martin Lewis explains what equity release is and how it might help your finances. It’s done via a loan, which is usually repaid from your home’s value once you die. You could lose your entitlement to them. 6. This is achieved either using a type of mortgage, or by selling that portion of your home on the condition that you can continue to live there as long as you wish. With a typical 4.5pc rate the debt will have doubled within 16 years. You will receive far less money than you would from selling the property on the open market – although of course in that situation you would still have to find somewhere else to live. Thus begging the question, is equity release good or bad? The equity release industry is represented by a trade body called the Equity Release Council (ERC). Some reasons to consider it include: Some reasons to choose an alternative to equity release include: The minimum age for taking out a lifetime mortgage is usually 55. The amount you owe will grow with interest, but you can sometimes reduce this by paying off the interest as you go, so it doesn’t compound (this is known as an ‘interest paying mortgage’). It is important to check the terms and conditions before taking out the plan. You may qualify for an enhanced lifetime mortgage if you have a serious health condition or an unhealthy habit, like smoking. Is equity release a good idea? Equity release is often the only method available for older people to extract funds from their property without downsizing or selling. Yet another is that having lots of money in your account may reduce the benefits you are entitled to, including help with the cost of care. The percentage of the property’s value a borrower is looking to release would have the biggest impact on rates. The question then becomes, is equity release a good idea? Whether a lifetime mortgage or a home reversion scheme is best for you will depend on a wide range of circumstances, such as how much you hope to leave your family as an inheritance. In short, it’s the sum you’d walk away with if you sold the home for cash. The latest industry data shows that for every £1 of savings withdrawn via flexible pension payments in the last year, 50p of housing wealth was unlocked via equity release – up from 40p in 2016. Then no doubt someone has already mentioned equity release to you as a way of redressing the imbalance. Extracting cash could mean that any means-tested benefits – spectacles, dentistry, council tax and pension credit could be impacted. With a lifetime mortgage, you run the risk of owing far more than you borrowed when the time comes for the home to be sold – up to the total value of the property (but not more than that). Of course, it helps that the sums released are tax-free. Yet while equity release rates don't sound much higher than ordinary mortgages, they often cost much more. Equity release squares the circle, by turning all that spare equity into cash that they can spend today. Generally, the older you are when you take out the scheme, the more money you’ll get. The language used by equity release firms in television adverts is inviting: "Access the value of your home, tax-free", "How much tax-free cash could you release? Your adviser can help you with this choice. We will look at all the financial solutions that are available to you, not just Equity Release. Her death left me on the verge of being homeless’, 'We thought it was organised by Age UK': customer confusion over charity's equity release tie-up, Equity release goes mainstream as first high street lender enters market, 'We paid £10k to escape our sky-high equity release rate': how to switch plans and save thousands, Sledgehammer exit penalties still lurking in many equity release plans, ‘My lender wants £161k in penalties’: the 'astonishing' rates of equity release interest. Equity release schemes are designed to be a lifelong commitment, so, if you change your mind, need to move house or want your equity for something else later, you could find yourself seriously restricted. Is equity release a good or bad idea? These can make it very expensive to switch to a new, cheaper deal which leaves you a prisoner to your current provider. Releasing cash against the value of your home can be a way of gifting wealth to family members, free of inheritance tax. Finding yourself house rich and cash poor? Just 13% of those who supported a client with a lifetime mortgage purchase in the last year say they presented the idea to their clients, whereas nearly two thirds (64%) said their clients came to them with the idea. Most equity release schemes now have a No Negative Equity Guarantee (NNEG). As you enter later life, you may find you need additional sources of income. This is because a lifetime mortgage (like a regular mortgage) charges compound interest. 5. People considering equity release must get professional financial advice beforehand. Consider alternatives But if you don’t want to sell your home, you may still be able to access a large portion of this money. 2. Find the right adviser fast with our matching technology. 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