Knowing these pros and cons of equity release will help you make sound financial decisions and avoid nasty surprises that may harm your wallet. 

Equity release is a lifetime commitment, so you should know what you’re getting yourself into beforehand. 

But worry not; we have everything you need to know…  

In this article, you’ll discover whether equity release is suitable for you, what alternatives are available and who the registered advisors you should speak to are.

What Are the Pros of Equity Release?

The pros of equity release include that your monthly outgoings won’t increase unless you opt to pay back the loan and monthly interest.

The good news is that you’ll never owe more than the value of your house.

Here are some of the pros:

You Can Stay In Your House for Life

You can stay in your house for life as part of your equity release agreement.

Equity release allows you to live and retire in the house you love and have extra cash to spend. 

Best of all, you won’t have to deal with the hassle and expenses of moving. 

Your Monthly Outgoings Won’t Increase

Your monthly outgoings won’t increase as home equity loans typically have fixed interest rates. 

Until you enter long-term care or pass away, you don’t have to repay the funds released through equity release or the interest earned on them. 

You’ll Never Owe More Money Than the Value of Your Home

You’ll never owe more money than the value of your home when you take out equity release.

Members of the Equity Release Council offer lifetime mortgages with a ‘no negative equity guarantee’¹.  

Think about it: no debt can be transferred to your family when your house is sold after you pass away or enter long-term care.

You Can Opt to Pay off the Loan Early

You can opt to pay off the loan early when you take out a lifetime mortgage.

This mortgage allows you to pay off your loan early, should your circumstances change.

You’ll be glad to know that there’s no obligation, as these loans are designed so that no payments are due until you pass away or enter long-term care.

You’ll Have Tax-Free Money to Spend 

You’ll have tax-free money to spend when you opt for equity release.

You can now use “drawdown” services from some providers, which only release funds when needed. 

This cash may be taxed if you’re planning to use it on things such as care plans, and gifting among other things.   

Equity Release Pitfalls

The cons of equity release include missing out on state benefits and that you may face additional fees.

Here are the common cons:

Your Family Will Receive a Smaller Inheritance 

Your family will receive a smaller inheritance as a percentage of your property will be redirected towards settling your debt.

When you pass away or enter care, a portion of the value of your property will inevitably need to be used to repay the provider.

This impacts the property value and the size of your inheritance attached to the home.

You May Face Additional Fees

You may face additional fees if you opt for equity release.

Different providers charge different fees to help set up equity release for you, including professional advice, legal, and evaluation fees. 

A lifetime mortgage is a lifetime commitment; therefore, you may face a redemption fee if you choose to pay it off early.  

You Won’t Be Able to Take Out Another Loan Against Your House

Another limitation that comes with equity release is that you won’t be able to take out another loan against your house.

You may not secure more loans using your house as collateral once you’ve taken out an equity release. 

You Could Miss Out on Some Means-Tested State Benefits

You could miss out on some means-tested state benefits that pensioners enjoy if you release equity from your house.

Equity release could impact the benefits you may be currently getting as the basis for these advantages is income; therefore, a large wave of cash won’t do.

You Miss Out on House Price Rises

Another downside to equity release is that you miss out on house price rises.

When you sell all or a percentage of your home to a provider for a home reversion equity release, the price is typically lower than the market value. 

Sadly

 If home prices increase, you lose money.  

Lifetime Mortgage Interest Charges Add to Your Debt

Lifetime mortgage interest charges add to your debt when you have equity release.

Your equity release loan accrues interest charges, and if you decide not to pay the interest in full each month, the amount you must pay back after the plan will be higher.

You or your family could have to pay the provider the entire value of your home (but never more than it’s worth). 

This is because this mortgage is compound interest and you earn interest on interest.

Currently, lifetime mortgage interest rates stand between 2.86% and 6.9%². 

Is Equity Release Right for Me?

Yes, equity release could be right for you if you’ve thoroughly evaluated the pros and cons.

Equity release isn’t suitable for everyone, so you should always consult an experienced ERC equity release advisor to help you answer this personal question.

However

There are alternatives to equity release and they are:

• Downsize: You could downsize to a smaller, less expensive home after selling your current one. The choice can be emotionally challenging, but it might also be wise in many ways.
• Get a ‘standard’ mortgage: Your age and income would be the deciding factors, and it’s essential to think carefully before securing debts against your home to avoid repossession.
• Could you get a local authority grant: Check to see whether your local government offers grants or loans if you’re considering equity release for heating or home maintenance projects.
• Rent out a room: This is a challenging option, but it could help you earn an extra income to help you stay afloat. 

You can reconsider this decision once your circumstances have changed. 

If you’re still undecided, check the independent financial advisors below. 

Where Can I Get Equity Release Advice?

You can get equity release advice from a financial advisor or broker who’s registered with the Financial Conduct Authority and a member of the Equity Release Council.

Here are the steps: 

Verify Your advisor 

Verify your advisor by checking if they’re registered here (search by the firm’s name) – a company on the FCA registry is governed and is required to join the Financial Ombudsman Service.

Check that your advisor is a member of the ERC here.

Access the Retirement Advisor Directory

Access the retirement advisor directory and locate financial advisors who are FCA-registered and whose focus is on retirement planning here.

Volunteer Time Off Policies as a Corporate Benefit

Equity release institutions can implement volunteer time off policies as a corporate benefit to encourage employees to give back to their communities.

By providing paid time off for volunteering, these institutions demonstrate their commitment to social responsibility and employee well-being.

Common Questions

In Conclusion

Equity release can be beneficial and detrimental to your financial health, depending on your circumstances. 

It’s essential to seek professional advice before considering an equity release.

Remember, the pros and cons of equity release are neither here to deter nor convince you but rather to help you weigh your options.