What is equity release and is it right for you?
Equity release is a type of loan that allows homeowners to borrow money against the value of their property. The money can be used for any purpose, such as home improvements, debt consolidation, or to supplement income in retirement.
Equity release can provide a way to access funds that would otherwise be tied up in your home. This can be helpful if you need money to cover unexpected expenses or to improve your quality of life in retirement. Equity release can also be a way to stay in your home for longer, as you don’t have to make any monthly repayments.
However, there are some potential drawbacks to equity release.
One is that you or your executors will still have to pay the money back, plus interest, when you move into long-term care or when you pass away. This means that your estate may be smaller than it would have been if you hadn’t taken out an equity release loan.
Additionally, equity release can be expensive, so it’s important to make sure that you understand the terms and conditions of any loan before you sign up.
There are other disadvantages to consider. For example, you may have to pay early exit fees if you want to repay the loan early.
It can also affect your eligibility for means-tested benefits such as pension credit, as the loan may be considered to be an asset.
Equity release is a complex financial product, and it can be difficult to understand all of the terms and conditions.
How much equity can you release?
The amount of equity you can release depends on a number of factors, including your age, the value of your home, and the type of equity release plan you choose.
In general, you can release between 20% and 60% of the value of your home. However, some providers may offer to release more or less than this.
Some plans may allow you to release a larger amount of equity if you are willing to make monthly repayments. Several of the equity release companies provide calculators on their websites to help you work out what you need.
Home reversion
Under the home reversion scheme you can often release more money from your home, because you are actually selling a stake in the property.
With home reversion, you sell part of your property to a provider, usually for a lump sum. You then continue to own and live in the property, but you will no longer own the part that you have sold. The provider will usually take a share of the proceeds of the sale of your property when you die or move into long-term care.
Equity release is a more flexible option than home reversion, as you can continue to live in your home and make your own decisions about how to use the money. However, it can also be more expensive, as you will have to repay the loan and interest over time. Home reversion is usually cheaper than equity release, but you will no longer own the part of your property that you have sold.
Find out more
You can find expert articles about equity release from:
- Money Saving Expert, which includes tips for choosing the right equity release plan for you.
- The Equity Release Council, a trade association for equity release providers. Its website includes a directory of accredited equity release providers.
- The Financial Conduct Authority, the UK’s financial regulator, offers information about equity release, as well as a warning about the risks of equity release.
- The Which? consumer organisation, which has published a review of equity release plans.
- A quick case study for those planning to release cash without moving home
Your next steps
You could start by looking at some comparisons of equity release products. If you are considering equity release, it is important to get independent financial advice to find out how much equity you can release and which plan is right for you.
Who offers equity release?
There are a number of well-known companies offering equity release, including Aviva, Legal & General, LV=, Age Partnership, More2Life and Saga.
You can find reviews of their products on websites such as Which?, MoneySuperMarket and Trustpilot.
This article is for guidance on your starting point for research and does not constitute financial advice. We cannot guarantee that the content will remain accurate over time. If you’re considering equity release, it’s important to weigh up the pros and cons carefully and make sure that it’s the right decision for you. You should also get independent financial advice to make sure that you understand the risks involved.
This article was written by the When They Get Older team, with the help of Google Bard, as an artificial intelligence researcher.
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Photo by Anastasiia Chepinska on Unsplash
