5 questions to ask yourself about equity release

If you’re in need of extra funds in the run up to or in retirement, and your funding options are limited, equity release lets you unlock some of the value of your home without having to move out.

While this may sound appealing, the interest can wrack up quickly and there will be a lot less property wealth to leave your nearest and dearest.

In this article, I’ve set out 5 questions to ask yourself if you’re considering equity release, before you go any further.

1. Am I eligible for equity release?

The first question to ask yourself is a simple one: do I qualify for equity release?

So you don’t fall at the first hurdle, to be eligible for a lifetime mortgage you (or the youngest person on a joint application) must be at least 55 years old and own your own home worth £70,000+ on the UK mainland or Northern Ireland. For a home reversion plan, you typically need to be at least 65 years old.

2. What do I need the money for?

Next, think about how much money you need and what you want to use it for.

Is the cash a nice-to-have or an absolute necessity? Do you need a short-term fix or do you have longer-term plans you’d like to put the money towards?

People choose equity release for all sorts of reasons, such as:

  • To give their income a boost and live more comfortably
  • To pay off debts
  • To fund a bigger project, such as home renovations or modifications
  • To help family members out financially
  • To pay for care or medical treatment

Also, don’t forget to think ahead. If your financial situation looks set to change in the future – for example, receiving your pension or coming in to an inheritance – there may be an alternative to equity release that would better address your immediate funding needs.

3. Am I willing to move?

This is a big question, especially if you’ve lived in your home for a long time. Ask yourself whether you’d be willing to move or downsize in the future, or if you’d much rather stay put. Don’t forget to consider whether your current home could still meet your needs (or be adapted to do so) if you were less mobile or no longer able to drive.

Moving to a smaller or cheaper property could release the equity you need, but moving house can be costly and it might also mean having to move further away from family or friends.

4. Is leaving an inheritance important to me?

Remember that leaving an inheritance is a choice not an obligation. There are many things to consider and, ultimately, whether you do so will depend on what’s most important to you.

With an equity release lifetime mortgage, the loan plus compound interest must be repaid when you die or move permanently into care, usually from the proceeds of selling your home. This will significantly reduce the value of your estate and, consequently, how much your beneficiaries will inherit.

But there are ways to soften the blow of compound interest. For example, you can choose to make repayments as you go, only draw down what you need from your loan ‘pot’ and gift money to loved ones during your lifetime as a ‘living inheritance’. Some lifetime mortgages also come with an inheritance guarantee, allowing you ringfence a percentage of your home’s value, effectively setting it aside for the next generation.

5. Is there another way to raise the funds I need?

Equity release is one of a number of options you should consider before deciding on the best course of action for you.

Would it make more sense to downsize? Do you have savings or investments you can access first? Or could you remortgage onto a cheaper deal or a retirement interest-only mortgage (RIO)?

Your financial adviser will be able to talk you through the alternatives to equity release so you don’t overlook anything that might work better for you.

What next?

If, after asking yourself these questions, you think that equity release may be something you’d like to investigate further, the next step is to get financial advice from a suitably qualified professional.

In the next article, I’ll walk you through how to go about choosing a reputable financial adviser with the knowledge and skills to help you decide if equity release is right for you.

We work in association with leading retirement specialists Age Partnership, who offer free initial advice on equity release with no obligation to go further. They will be happy to answer any questions you have to help you determine whether equity release is right for you.

Request a callback or call 0800 368 8466 to speak to an adviser. Or use our equity release calculator to see how much you release from your home.

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