An equity release is a financial product that enables you to release equity, i.e. cash, from your property. This is something you may be able to do if you are aged 55 or over. You can either take the funds in small amounts or access a lump sum. Some people decide to choose a combination of both.
Below, we assess the main equity release pros and cons to help you gain a better understanding of whether it could be the right option for you.
What are the pros of equity release?
Let’s start by looking at the advantages of equity release.
Firstly, you can spend the funds however you wish. Whether you want to top up your monthly income or help your child purchase their first property, you are not restricted in how you use the money.
You can also choose to receive either a monthly income, a lump sum, or a combination of both, allowing you to access the money in a way that best suits your individual needs.
In addition, flexible repayments are available with many products. If you wish, you can pay some or all of the interest, helping to reduce the amount owed over time. You may also have flexibility regarding how the original loan is repaid, enabling you to choose an arrangement that works for your circumstances.
Importantly, releasing money from your home does not mean you lose ownership of it. You can continue living in your property, and in many cases, moving home later is still possible.
What are the cons of equity release?
As with any financial product, there are also disadvantages that need careful consideration.
Interest can build up quickly, particularly if you choose not to make any repayments until you move into long-term care or pass away.
In addition, the amount of inheritance you are able to leave to your loved ones is likely to be reduced because the loan and accrued interest are repaid from your property’s value.
Other considerations include potential early repayment charges if you decide to repay all or a significant portion of the loan before the agreed term. Equity release products also tend to have higher interest rates than many standard residential mortgages.
Furthermore, your entitlement to means-tested benefits could be affected if you are currently receiving them.
As you can see, there are both advantages and disadvantages associated with equity release. It is important to understand these fully before making a decision and to consider whether equity release makes sense for your personal financial circumstances.
A good starting point is to use an Equity Release Calculator to estimate how much you could release and whether it is likely to be a suitable option for you.