Ask both a financial adviser and a solicitor to study the contract for you to ensure that it is in your best interests. Most equity release schemes now have a No Negative Equity Guarantee (NNEG). 5. Look at alternative sources of income, such as downsizing or renting out a room. Last year, 23% of retired homeowners who took out an equity release plan said lending to their loved ones was their motivation. Finding yourself house rich and cash poor? This means that the advice we offer is unbiased. Extracting cash could mean that any means-tested benefits – spectacles, dentistry, council tax and pension credit could be impacted. Equity release can provide you with a large sum of money to spend while enabling you to continue living in your home. 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. Equity release is often the only method available for older people to extract funds from their property without downsizing or selling. However, releasing equity may not be a good idea if you don’t like the idea of your family’s inheritance being affected. The latest industry data shows that for every £1 of savings withdrawn via flexible pension payments in the last year, 50p of housing wealth was unlocked via equity release – up from 40p in 2016. And where can I find unbiased equity release advice that I can trust? You could lose your entitlement to them. Equity release squares the circle, by turning all that spare equity into cash that they can spend today. This ensures that borrowers know in advance how much will be owed in the future. These can make it very expensive to switch to a new, cheaper deal which leaves you a prisoner to your current provider. This is because a lifetime mortgage (like a regular mortgage) charges compound interest. 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. This can enable you to borrow more, or to pay lower interest. 3. Whether or not it’s the right tactic for you will depend on your plans for your cash and your financial situation. Consider alternatives However, this could still mean that all the property’s value is used up in paying off the mortgage. What are the advantages of equity release? Am I protected when using equity release? Is equity release a good idea or safe? Find the right adviser fast with our matching technology. Your equity is the total market value of your home, minus any mortgage you haven’t yet paid off. We are a firm of Independent Financial Advisers (IFA’s). 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’). All equity release products are authorised and regulated by the Financial Conduct Authority. These changes mean that Equity Release could now be a realistic element of your Retirement Planning. Advisers must have taken special qualifications to become equity release advisers. One way to reduce this risk is to pay off the interest as you go. 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. Releasing cash against the value of your home can be a way of gifting wealth to family members, free of inheritance tax. The minimum age for a home reversion scheme may be 60 or 65. The Equity Release Council was set up to protect people from losing out from these schemes. People considering equity release must get professional financial advice beforehand. You can choose to end your lifetime mortgage early, but this can cost you. But just how safe is hollowing out the value of your home? 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. 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. Yet while equity release rates don't sound much higher than ordinary mortgages, they often cost much more. Martin Lewis explains what equity release is and how it might help your finances. We rely on advertising to help fund our award-winning journalism. Nick has been writing professionally on money and business topics for over 15 years, and has previously written for leading accountancy firms PKF and BDO. As most schemes offer a roll-up of interest it means that no payments are made by the borrower. Equity release is often the only method available for older people to extract funds from their property without downsizing or selling. While rates are the cheapest they've been in years, equity release itself is still an expensive and risky way to raise cash. If you have paid off most or all of your existing mortgage, you can consider an equity release scheme. So I'll quickly run you through the key points you need to consider. So, to get a better idea if equity release is for you, we’d suggest you have a friendly chat with one of the equity release experts we work with. In this case you will end up repaying more overall, as the interest will compound over time. For more information or speak to an Equity Release mortgage adviser call us on 01628 507477 . 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. To understand how these common equity-release pitfalls might influence your situation, you should discuss any possible deals with a financial adviser. Older homeowners warned over equity release advice costs, Overhaul for equity release after ‘lazy’ advisers accused of selling unsuitable loans, Equity release giant forced to ditch misleading ads after 'free advice' claim, Older homeowners are being failed by poor equity release advice, warns City watchdog, ‘Cocktail of dangers’ for older homeowners using equity release to help struggling families, 'Cheapest ever' equity release loans as demand for using houses like cash machines soars, The secret trick that can save retirees thousands, Age UK quits equity release after Telegraph investigation, Homeowners cash in as equity release rates fall below 5pc for first time, ‘My wife was 20 years my junior. Is equity release a good or bad idea? 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). 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. 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. Of course, it helps that the sums released are tax-free. ... an equity release scheme might seem like a good idea. This “rolling up” means that the interest compounds, growing rapidly. You may have read mixed reviews about equity release. See the examples below. 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. No other loans can be taken using the property as security. Some providers of home reversion schemes require you to be over 60. Borrow in stages What does it cost to set up equity release? Unlocking the wealth in bricks and mortar can make sense, but it is not a decision to be taken lightly. 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. Selling the house for a lump sum with a right to continue living in it is equity reversion which justifiably has had a bad press over many years with lots of horror stories. This is a good reason to be cautious of lifetime mortgages if you hope to leave a good inheritance for your family. For example, borrow £20,000 aged 65 at 6.5% on a £120,000 home and live 25 … The idea of having to do that in the days after a death, with the funeral quite rightly the top priority, beggars belief. Equity release is a way of spending your home’s value whilst you’re still living there. They’ll be able to give you an unbiased, no-obligation insight into equity release, and help you to see if its right for you. 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. The reverse mortgage is a form of equity release that is available in Australia, Canada, the United States and the United Kingdom. As with all financial situations, everything is personal making equity release a potentially good idea for some people. Take advice first 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. One thing to consider is: if your mum is only on state pension, releasing equity might affect any means-tested benefits, pension credit for instance. The "facility" option allows borrowers to have access to a pot of money for the future and are not charged interest until it is drawn upon. 6. Nick Green is a financial journalist writing for Unbiased.co.uk, the site that has helped over 10 million people find financial, business and legal advice. Even better, go over all your future plans with your adviser at the start, so you’re less likely to change your mind. The Top 3 … The simple answer is that it depends on your personal circumstances; all the more reason why you should take professional advice before you make a decision. Most providers now offer a ‘no-negative-equity guarantee’, which means the debt will never be more than the sale value of the property. It is very different to modern equity release mortgages where you retain ownership of the … 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. However, there are downsides to accessing the value of your home in this way. … Find the right adviser fast with our matching technology. The equity release industry is represented by a trade body called the Equity Release Council (ERC). 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. And in the first six months of this year that rose to 31%. As an extra safeguard, have your solicitor check over the agreement you have with the equity release company before signing it. How we can help you with your Equity Release. There are numerous up-front costs involved in setting up an equity release scheme, so make sure you’re clear on all of these before you proceed. Costs can include: These costs can vary, but you should allow for around £3,000. Some scandals in the 1980s gave the whole equity release market a bad name, but with a meticulous plan provider, there is nothing to worry about. Find out more, The Telegraph values your comments but kindly requests all posts are on topic, constructive and respectful. Thus begging the question, is equity release good or bad? Be sure also to check out sovereignboss and see how much equity you can release with the equity release calculator. In recent years, there have been a number of changes to many equity release products to provide greater The money you receive from a lifetime mortgage loan is tax-free. 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. In short, it’s the sum you’d walk away with if you sold the home for cash. You borrow a lump sum in the form of a mortgage, which is eventually repaid from the sale of your home either when you die or move into long-term care. Check your benefits situation Choose the right form of equity release for you and your family You may have read mixed reviews about equity release. 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