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Things you should consider before choosing equity release

Article | Apr 2024

Equity release can be a very useful financial tool for homeowners over the age of 55. It can open the door to fiscal freedom in retirement and enable people to fund things like dream holidays, buying a second home or gifting an early inheritance. This could be achieved by unlocking some of the value in your property in the form of a tax-free lump sum.

That might sound like something that would help you in your current financial situation. However, it is important to understand that there are several things to consider before opting for equity release.

Before opting to release equity from your home, you need to consult with an expert adviser. They will be able to provide you with all the industry knowledge you need to know whether it is the right option for you.

Responsible Life specialises in providing the highest quality advice on all matters equity release. Our advisers ensure that you understand any risks and work out how much money you could borrow.

In this article, we will explore the important things that should be considered before you take out equity release on your property.

What are the costs of equity release?

Before you choose to go ahead with an equity release application, you need to make sure you understand the costs associated with it. This will include all the extra fees that are paid during the equity release process.

The costs of equity release include solicitor fees. This is because you will need to meet with an independent solicitor who will take you through the contract to ensure everything is understood. There are also fees associated with the process of valuing your property which determines how much you can borrow.

Another fee to consider around equity release is the interest rates. The interest rate on releasing equity from your home compounds. That means the amount you owe increases over time. However, your interest rate will be fixed for life, and you can never owe more than the full value of your property.

Are there any other options?

If you meet with Responsible Life’s equity release advisers, they will take you through all your options. This includes exploring the other financial routes you could take instead of releasing equity.

The other options include downsizing. Borrowing from your home’s value might not be the right option to release more funds because it will devalue your overall estate. Therefore, you could cut costs by moving to a smaller property and raise funds that way.

Perhaps you’re considering equity release to buy a second home or want a more conventional way to remortgage. You could instead opt for a traditional mortgage, as this is still possible for people over 55.

Finally, you could opt for a Retirement Interest-Only Mortgage. This is available to homeowners over the age of 55 and allows you to borrow a tax-free sum from your home and only pay the interest every month. The full amount borrowed is then not due for repayment until the last homeowner passes away or enters long-term care.

How much money can I borrow?

Perhaps the primary thing to consider before opting for equity release is the amount of money you could receive. After all, this is the main benefit of releasing equity from your property.

The amount of money you can release from your home depends on a few individual factors. These will be different for any homeowner or group of homeowners making an application.

One factor will be the age of the youngest homeowner in the property. The older the youngest homeowner is, the more money you will be able to release.

The most recent valuation of your home will also be a good indicator as to how much money you could borrow. The larger the value of your property, the more money you can release from it.

Responsible Life has a free equity release calculator that you can use to estimate how much money you could borrow. Simply fill in a couple of details and receive your free estimate!

What is the impact of releasing equity?

By borrowing a cash lump sum, you could affect your entitlement to means-tested benefits. As a Lifetime Mortgage is a long-term loan secured against the property, releasing equity will also reduce the value of your estate.

Your adviser will walk you through all the features and risks during a consultation, as well as the features available to try and control these risks.

Need more information on equity release?

If you feel you need any more information about equity release and what to consider, schedule a call with our Information Team today! They can arrange a consultation with one of expert advisers.

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