Equity release is a financial product that has gained popularity in recent years as a way for homeowners to access the value tied up in their properties without having to sell. It allows you to borrow money against the equity in your home, with the loan typically repaid when you sell your property or pass away.
While equity release can be a useful way to access funds, it’s important to understand the potential risks and drawbacks before making a decision. In this article, we’ll explore 4 little known truths about equity release that you should be aware of.
Equity release can impact your inheritance
One of the most significant things to consider when considering equity release is how it can impact your inheritance. Equity release is a loan secured against the value of your property, which means that the amount you owe will continue to grow over time. This can reduce the amount of equity you have in your property and ultimately reduce the amount you’re able to pass on to your heirs.
It’s essential to discuss your plans with your family and consider whether equity release is the right choice for you. You may want to explore other options, such as downsizing your property or taking out a conventional mortgage, to release some of the equity without impacting your inheritance.
There are limits to how much you can borrow
Another little-known truth about equity release is that there are limits to how much you can borrow. The amount you’re able to release will depend on several factors, including your age, the value of your property, and the type of equity release product you choose.
Most equity release products are available to homeowners aged 55 or over, with the maximum amount you can borrow typically capped at around 50% of the value of your property. It’s essential to speak to a qualified equity release adviser to discuss your options and determine how much you can borrow.
Equity release can impact your eligibility for means-tested benefits
If you receive means-tested benefits such as Pension Credit or Council Tax Reduction, equity release could impact your eligibility for these benefits. This is because the additional income you receive from equity release could affect the amount of benefit you’re entitled to.
It’s important to consider how equity release could impact your finances and seek professional advice before making any decisions. A qualified equity release adviser can help you understand the potential impact on your benefits and explore alternative options.
Equity release can be expensive
Equity release can be an expensive way to borrow money, with interest rates typically higher than those offered on conventional mortgages. This is because equity release products are designed to be long-term loans, with interest charged on the amount borrowed throughout the lifetime of the loan.
It’s essential to consider the total cost of equity release, including any fees and interest, before making a decision. You may want to explore alternative options, such as downsizing your property or taking out a conventional mortgage, which could be a more cost-effective way to access the equity in your home.
Equity release can be a useful way to access the value tied up in your property without having to sell. However, it’s essential to consider the potential impact on your finances and your inheritance before making a decision. By working with a qualified equity release adviser, you can explore your options and make an informed decision about whether equity release is right for you.
It’s important to keep in mind that equity release is a long-term financial commitment and not something to be entered into lightly. Before making any decisions, it’s essential to do your research, speak to a qualified adviser, and consider all of your options.
While equity release can provide a source of income or funds for homeowners who need it, it’s important to understand the potential risks and drawbacks.