Understanding equity release – know your facts

Houses made of money

With mortgages extending into retirement, and the debt burden increasingly creating financial pressure in later life, the need to find a solution is a priority for many homeowners.

Pension income can help to pay off debts, but this money is typically needed to sustain a comfortable lifestyle during retirement and may not be surplus to requirements.

So what other options are there to help manage crippling mortgage debts after you stop working? An equity release scheme could provide the answer.

A complex financial solution that requires careful planning and selection, equity release can help to free up the money which is lying dormant in your home. Like any other kind of financial solution, it’s imperative to understand exactly how it works so here’s what you need to take into account.


Not all equity release schemes are the same

Equity release schemes work by freeing up the money in your property without the need to sell up and move. This strategy thereby gives you the best of both worlds.

However, don’t forget to check the fine print before you sign on the dotted line as not all of them have the same terms and conditions.

Check to make sure you won’t have to sell up and leave during your lifetime (this should be a guarantee) and that you can still move home if you want to, without penalty. You should also be given certain safeguards, such as a no negative equity guarantee.

To ensure you’re using a company that is reputable and trustworthy, look to see if they subscribe to the code of practice set out by the Equity Release Council.


Check whether existing benefits would be affected

Although an equity release scheme is just a way of accessing the money you have tied up in assets, it may be treated differently for the purposes of tax and state benefits.

Before going ahead with any kind of equity release, check to see what the impact will be on your other streams of income and your entitlement.


Use a drawdown scheme where possible

Not all equity release schemes provide the cash in one lump sum which provides you with more flexibility over how much to take and when to use it.

Some providers will pay out the cash in one lump sum, and if that’s what you want, that’s fine. However, interest will start to accumulate as soon as you have the money so if you don’t need it all at once; it’s more helpful to have a drawdown option. This leaves the cash ready for when you need it, but minimises the amount of interest you have to fork out.

Another useful feature is the ability to pay back into the scheme to pay off the interest; if you think this might be something you want to do, check the scheme offers flexibility.


Talk things through

Equity release schemes have an impact on the whole family, particularly when it comes to matters of inheritance. It’s helpful if everyone understands the decisions you have made and exactly what’s involved so talking things through with your loved ones before proceeding is an excellent idea.

And of course, equity release just like any other financial product, may be more suitable for some circumstances than others, so getting independent professional advice is highly recommended. This will ensure you fully understand all of the implications, and the fees that may be involved, before taking the plunge.

Equity release is an option that can work extremely well providing you understand how it works. By making sure that you choose the provider that offers the package that meets your needs, you can ensure that your retirement is far more comfortable and free of financial worries.


Author Bio: Daisy Stein blogs for Saga.



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