Is It Worth Getting Equity Release? A Detailed Look at the Pros and Cons

Equity release allows homeowners to access the wealth tied up in their properties while continuing to live there With UK house prices rising over the years, many older homeowners have built up substantial equity in their homes Equity release provides a way to tap into this money if needed.

But equity release means getting a loan backed by your home, so you should give it a lot of thought. There are advantages and potential drawbacks to weigh up.

What is Equity Release?

Equity release lets homeowners over 55 access some of the value of their property as a lump sum or income. There are two main types:

• Lifetime mortgages let you borrow money against your home. When you die or go into long-term care, the loan plus interest is paid back. This is the most popular type of equity release.

• Home reversion – You sell all or part of your home to a reversion company but retain the right to live there rent-free for life.

You can get the money now in both situations while still living in your home. How much you can get back depends on how old you are and how much your home is worth.

The Potential Benefits

• Access cash – Equity release provides funds now for major expenses rather than leaving this money locked up in your home until you pass away.

• Retirement income—The lump sum or income can help if you don’t have enough money saved for retirement from pensions or other sources.

• Avoid downsizing – Equity release lets you stay in your current home if you don’t want to move to a smaller property.

• Long-term care costs – The money released could help cover expensive care needs in later life.

The Potential Drawbacks

• Reduced inheritance – Your beneficiaries will inherit less as equity release reduces what remains of your property’s value.

• Interest rolls up – With lifetime mortgages, interest rolls up if unpaid. This can leave less equity remaining.

• Risk of debt – You could end up owing more than remains of your property’s sale value, if house prices fall.

• Costs – Set-up costs like valuation and legal fees must be paid upfront.

• Effect on benefits – Released equity may affect any means-tested benefits you receive.

• Alternative options – Think carefully about alternatives like downsizing that could provide funds without taking on debt.

Tips for Minimising the Risks

• Seek professional advice to review your options and understand the implications.

• Use an Equity Release Council member provider for protection against risks like negative equity.

• Consider staged smaller lifetime mortgages rather than one large loan, to reduce compound interest.

• Compare deals to find the lowest interest rates. Rates below 5% are available.

• Check it won’t affect means-tested benefits or cause other tax issues.

• Evaluate alternatives like downsizing, taking in a lodger or using other assets.

• Involve your beneficiaries in discussions so they understand your choices.

Is Equity Release Right for You?

Equity release can provide useful funds if needed but does reduce future inheritance and involves taking on debt. Consider your specific situation and goals:

• Do you have insufficient retirement income without accessing your property?

• Is a lifetime mortgage or home reversion plan the most suitable way to raise money?

• Are you comfortable reducing your estate and inheritance for beneficiaries?

• Have you compared all options for releasing funds including downsizing?

For many, equity release will be worthwhile if handled carefully and appropriately. But for others, alternative solutions may be better suited. Seeking personalised professional advice is essential to decide if equity release is worth it for you.

Get Specialist Equity Release Advice

Making major financial decisions requires expert guidance you can trust. Connect with an independent equity release adviser to:

• Review your overall financial situation and objectives

• Compare equity release with other options like downsizing

• Identify the most suitable equity release schemes for your needs

• Ensure you understand all costs, conditions and risks

• Set up the chosen plan safely and efficiently

With personalised advice from a qualified professional, you can make an informed decision on whether equity release is truly worth it for your circumstances.