How Wise Is It To Use Equity Release? Pros & Cons

There are many pros and cons to any financial service. Some pros outweigh the cons, and others are more valuable even if there are cons involved.

With equity release, there can be many great things to consider, but like those great things, there are also things that can go wrong. Here, we look at the top 3 pros and cons of equity release with lifetime mortgage and how they can benefit you.

Top 3 Pros 

1. Financial Freedom

With the money you receive from an equity release lifetime mortgage, you can do anything you want. There are no rules to what you can do with the money, even if you just keep it in your savings until you need it. 

2. Clearing Old Debt 

If you have an existing mortgage and have debt that you need to clear, the money from an equity release lifetime mortgage will be ideal. You will be able to get your credit history in good health and use any money that you have left for other investments. Small businesses are a great way to ensure that even after you have released equity, you will still have an additional income to take care of once you get older. 

3. Home Renovations

Home renovations can be expensive, with many people unable to do them while working.  A home renovation plan could be paid in one payment with an equity release lifetime mortgage and give you the chance to live comfortably in your home after retirement. Whether you add more safety features for your home so that you can live safely as you get older or invest in landscaping, you will be able to pay for it all with your equity release. 

What Is Equity Release, And How Does It Work?

An equity release is a loan you take out against the value of your property. According to our equity release expert, John Lawson, you get a period of between 5 – 10 years to repay the loan and an interest rate of up to 7% . To qualify, you will need to have good credit health, a property that you own with a minimum value of £70 000, and you need to have proof of your employment history if you are still working. 

Top 3 Cons 

1. High Interest

The interest rate for equity release is high, and you will likely get far less in value for your home than you would on the open market. The interest is also for life, so you will be stuck unless you move over to another lender and risk the high cost of transfers and repayments. 

2. Loss of Inheritance Value

Your beneficiaries will receive less than expected with an equity release mortgage plan. If you die before the loan is repaid, the lender can sell the property and give them whatever money is left, or they will have to sell the house to cover the outstanding costs. If they do not want to sell, they will have 12 months to repay the loan before the lender takes possession of the property.

3. Defaulting 

If you default on your equity release, the lender will have the right to sell your home to cover any outstanding fees and costs. You get 30 days to repay any money you have defaulted on, but if you do not have the money and your children are not prepared to assist you, you will lose your home. 

Common Questions Answered: 

How Do I Know If An Equity Release Is Suitable For Me?

Fact find can help you decide if equity release can help you or if it will be unnecessary. A financial advisor can help you do the same. 

What Do I Need To Qualify For Equity Release?

You need to be a permanent resident of the UK, be older than 55 and have a property value of £70 000.

Conclusion 

It can be wise to release equity if you know the pros and cons of equity release. Be sure to understand what you are getting yourself into before you decide to put your property at risk. You will benefit from the assistance of a financial advisor if you do not know how to manage your money and are considering equity release. 

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