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Equity release pros and cons you should know

Article | Mar 2024

If you have been doing research into equity release you will have learned that there are different types of product, but ultimately, they all offer the chance to receive a tax-free lump sum. This could be achieved by unlocking some of the value from your property if you are a homeowner over the age of 55.

The tax-free cash that you can get from the value of your home is the immediately obvious benefit of equity release. However, there are plenty of other equity release pros to consider before you decide to release equity from your home.

In this article, we will explore all the pros and cons of equity release to help you understand whether releasing equity from your property is right for you.

What are the pros of equity release?

You could receive tax-free cash

When making an application for equity release, you will be wanting the main benefit of the tax-free cash sum. This money can be used to help you enjoy the dream retirement you deserve, achieve other goals like gifting an early inheritance to loved ones or even clear an existing mortgage.

The amount of money you could get from equity release will depend on a couple of individual circumstances. These include the age of the youngest homeowner and the estimated value of your property.

If you’re interested in finding out how much tax-free cash you could release, we have created a free equity release calculator to help. In a few short steps, you could discover the minimum and maximum amounts that might be available. Keep in mind that the older the youngest homeowner and the higher the valuation of the home, the more money you could release.

Interest rates are fixed for life

Another important equity release benefit to consider is that interest rates are fixed for life. This means you will have clarity in knowing that the interest rate on your equity release will not change over time.

This also means that you can work with an adviser to discover exactly what equity release might cost you. This will include an illustration of the impact of compound interest, and what the benefit of making regular payments might be.

Never owe more than the value of your home

When you release equity from your home with a Lifetime Mortgage, you will never owe more than the market value of your property. Again, this provides peace of mind in knowing that no matter what changes in the future, your estate will not inherit Lifetime Mortgage debt.

Payments are completely voluntary

A further advantage of equity release is that you will have the option to make voluntary payments within your lifetime. How and when you make them is entirely up to you. Some choose to pay the interest monthly, while others might choose to repay some capital each year. Choosing to do so will help to bring down the total amount that needs to be paid back once the last homeowner passes away or enters long-term care.

Any voluntary payments you decide to set up can also be stopped at any time, whether your financial situation changes, or you simply want to set more money aside for you. So, a benefit of equity release is that you have flexibility on when and how you pay some of it back.

You remain the owner of your home

With a Lifetime Mortgage, you are borrowing against your home rather than selling it, so will retain complete ownership.

What are the disadvantages of equity release?

When weighing up the equity release pros and cons, it is important to consider some of the potential disadvantages as well as the many benefits.

The value of your estate will be reduced

If you are considering making an application for equity release you should know that the overall value of your estate will be reduced. So, you should weigh up whether the benefits of the immediate tax-free cash sum are worth reducing your estate’s overall value. There are various features available to help control the increase in what you owe.

It may affect your entitlement to benefits

Releasing equity can, in some cases, affect your entitlement to means-tested benefits. This is something that will be discussed and assessed with your adviser during the application process.

There are early repayment charges

Releasing equity with a Lifetime Mortgage is not suitable for short-term needs, as it is a long-term solution. Should you choose to repay early, you may be subject to early repayment charges. However, we understand that circumstances can change, so the products we offer access to will come with fixed and defined early repayment charges, giving you peace of mind for the future.

Need more information on equity release?

We hope you have found this article informative. If you would like more information on the pros and cons of equity release, why not book in a for no-obligation appointment with one of our advisers? Simply schedule a call with our UK-based Information Team and they would be happy to help.

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