Taking out an equity release plan is a big financial commitment, similar to taking out a mortgage, so it’s important that you do some thorough research to find out all the details before you apply.
Talking to an experienced and reputable equity release broker or advisor is often the best way of finding the most suitable product for your personal needs and circumstances.
This article will outline some of the important things that you will need to consider before taking out equity release.
How much you can borrow and how you’re going to use it
Equity release is a very good way of releasing any money that you’ve got tied up in your property, but it should only be taken out if you have a specific need or use for it; not if you just want some money sat in the bank.
Common uses for equity release include:
- Clearing other debts like mortgages, secured loans or large credit card balances.
- Boosting retirement income so you can have a higher standard of living.
- Making improvements to your home, like an extension, new kitchen/bathroom, or anything that makes your home more suitable for when you get older.
- Providing financial support to family instead of them having to wait to receive an inheritance.
- Funding holidays and other once-in-a-lifetime experiences.
- Inheritance tax planning.
It’s also important to figure out exactly how much you need so you don’t borrow any more than necessary. Borrowing more than you need will just cost you more in the long run because of the interest charged. The best way to find out how much money you can release from your property is by using an equity release calculator.
How it will affect your family’s inheritance
With the majority of equity release plans, no monthly repayments are required throughout the term of the loan as the capital and interest are repaid from the sale of your property when you pass away or move into a permanent care facility.
This means that it will affect what you’ll have left in your estate as an inheritance for your beneficiaries.
If you’re not planning to use the money released to give your family an early inheritance or to help them out financially, then you may want to consider having a conversation with them so everyone understands what the implications are. Most people should be supportive of their parents using the money to improve the quality of their own lives first, but having the conversation now will save any potential family rifts later down the line. You may feel uncomfortable yourself about leaving less of an inheritance to your children, so talking to them should make you feel more at ease with the decision too.
Whether you can afford to make monthly repayments
When you’re looking at the different equity release options, something to consider will be whether you can afford to make any monthly repayments towards the interest.
Most plans don’t require any monthly repayments, but some do allow for this. If you can afford to make payments, then this will substantially reduce the amount that you’ll owe at the end of the term.
With equity release, the interest charged is compounded. This means that you’ll pay interest on top of interest. So, if you can pay this off on a monthly basis then it will stop it from building up so substantially.
How it will affect your entitlement to certain benefits
As equity release technically provides an income, it can affect your entitlement to certain means-tested benefits. This could have an immediate effect, or it could be in the future, so it’s something that you need to take into consideration.
Before you take out an equity release product, your advisor or broker will be able to do a full benefits assessment and let you know how you’ll be affected.
Whether you’ll want to move house in the future
If you think that you may want to move house after taking out an equity release plan, this is something that you should discuss with your advisor. As long as your lender is a member of the Equity Release Council, you will still be able to move house as long as your new property is suitable security for the loan.