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What are the pros and cons of equity release?

31/01/2022 |  min read

If you’re over 55, equity release could give you the stress-free retirement you have always dreamt of, but it isn’t suitable for everyone. Responsible Equity Release want to help guide you to making the right decision, even if that’s an alternative.

So, is equity release a good idea?

The most popular form of equity release is a Lifetime Mortgage. This means you can release the equity that has built up within your home. You can release this tax-free cash in a lump sum or in a series of flexible payments to you.

Whether the benefits outweigh the pitfalls of equity release is dependent on your personal circumstances, and it’s important to seek professional advice to help you determine this. Responsible Equity Release have outlined the pros and cons for you below to remain transparent:

What are the benefits of equity release?

  • The cash you release is tax-free.
  • With the no-negative-equity guarantee you will never owe more than your property is worth, even if the property market were to drastically shift in the future.
  • You don’t have to make any repayments until the last homeowner passes away or enters long-term care, but you can opt to make repayments.
  • You can access the money when you need it. It’s up to you if you take out one lump-sum or opt for a Drawdown Lifetime Mortgage where you can access smaller amounts of cash over time.
  • You retain full homeownership with a Lifetime Mortgage, unlike a home reversion plan - an alternative form of equity release whereby you sell a portion of your home to the provider.
  • You can still move home - as long as your new property meets the lender’s existing criteria.
  • Equity release interest rates are competitive.
  • Repayment comes from the value of your estate, meaning your loved ones won’t be liable for any Lifetime Mortgage debt.
  • Equity release allows you to reduce the value of your estate, which could be useful in reducing potential Inheritance Tax liabilities. Do bear in mind that the Financial Conduct Authority do not regulate Inheritance Tax planning.
  • You can ring-fence a proportion of your estate for a guaranteed inheritance, but this will reduce the amount of money you can release.

What are the disadvantages of equity release?

  • If you decide to make early repayments on all or part of the loan, there may be an Early Repayment Charge.
  • The tax-free cash you release will reduce the value of your estate and may affect your entitlement to means-tested state benefits. Even if you’re not entitled to these now, you may need them in the future.
  • Interest will ‘roll-up’ on a Lifetime Mortgage. Choosing a Drawdown Lifetime Mortgage can help to reduce the impact of this, as interest is only calculated on the money you have released.
  • A Lifetime Mortgage will involve lender fees, solicitor fees and a fee paid to your professional adviser. Your adviser can help provide clarity on all of the costs by providing you with a personal illustration before you choose to proceed.

What’s the process of releasing equity?

If you think equity release sounds like a good option for you, or if you would like to learn a little bit more about how the amount of tax-free cash available to you is calculated, see the Responsible Equity Release valuation process here.

How do I know the provider will be safe to use?

Responsible Equity Release will only ever use lenders that are members of the Equity Release Council, meaning that you will always enjoy the safeguards guaranteed by them.

Still unsure whether Responsible Equity Release could help you?

Visit Responsible Equity Release’s frequently asked questions to fill any gaps in your knowledge. Alternatively, if you would rather have a chat with a member of our friendly and expert Information Team call 0800 048 5384 today.

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Are you interested in learning more?

To find out more about Lifetime Mortgages, and the various features available, why not book a no-obligation appointment with one of our fully qualified advisers? The Information Team can help with this on 0800 048 5384.

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