Although Equity Release plans are a popular choice for those at or nearing retirement age, it is always pertinent to look at the ups and downs of taking out such a plan. Whilst working with a reliable adviser is the best way to get all the information you need to make the right decision, we’ve put together some questions and answers that look into the potential downsides of Equity Release.
Yes, compound interest is one of the key elements of Equity Release. This means that you are charged interest on the total loan amount, including any interest that has already been accrued. This pushes your loan amount up, which means there is more to pay off after you pass away or enter long-term care. There are some types of plan that will allow you to pay off the interest each month, so it is worth discussing this with an adviser before you make a final decision.
There are a few things to think about when taking out Equity Release, although these are not so much dangers as considerations. As mentioned above, compound interest is a key factor that affects your loan amount, which is something you must always be aware of. Your means tested benefits may also be affected by Equity Release, and you may also have to pay an early exit fee if you decide to pay the loan off early. State benefits such as pensions are not affected by equity release.
Yes, you can sell your house after taking out an Equity Release product, as all providers will allow the plan to be transferred over to a new property provided they approve it. The new property will need to meet certain criteria, and if it is significantly cheaper than your current property the lender may not think it worth lending such a large amount against it and you may have to pay some of the loan back.
The fees, roll up of interest, losing means tested benefits, and potential charges for paying it off early are among the most prevalent reasons people may choose not to do Equity Release, however there are numerous positives to consider also. Equity Release products suit many people who have reached a certain age and wish to help fund their retirement, make improvements to their home, or simply enjoy their later life.
At Bower, we will understand your unique circumstances and advise you to ensure you are receiving the best plan to meet your objectives. There are plans that allow you to make voluntary repayments and move home, subject to lender criteria. However, early repayment charges may apply in certain circumstances.
Equity release requires paying off any existing mortgage. Any money released, plus accrued interest to be repaid upon death, or moving into long-term care. Equity release will reduce the value of your estate and your entitlement to means-tested benefits now or in the future, and impact long-term care funding.
Bower Home Finance provides independent, impartial whole of market advice with an award-winning customer service experience. Initial advice is provided at no cost to you and without obligation. Only if you choose to proceed and your plan completes, would a typical advice and administration fee of £1,695 be payable.
If you are considering equity release, we strongly recommend that you read our equity release page carefully and talk to one of our specialists before deciding if you wish to proceed.
To find out more about any of the products and the service we provide, please call us on freephone 0800 411 8668, request a call back, email us, or join our live chat you’ll find on our website.
Please be aware that equity release may involve a home reversion plan or lifetime mortgage which is secured against your property. All features and risks are thoroughly explained in your free personalised illustration.
