Equity Release Advice
Tuesday 8 November, 2022
Releasing equity from your home is a big decision and one that should not be taken lightly.
The first step to take, if you are wondering how to release equity from you home, is speaking to a professional equity release adviser. An equity release adviser can explain the ins and outs of how equity release works. They can discuss your personal financial situation through to the interest rates available and tax implications that need to be considered.
Key reasons why you should seek equity release advice before applying
Thomas Oliver’s equity release specialist Tracy Dove, Financial Consultant and Mortgage Adviser in Laindon, Basildon and Exeter, discusses the intricacies as to whether equity release is right for everyone seeking to raise capital on the equity in their home.
What are the differences between equity release products?
There are a wide range of equity release products now available on the market. The number of products has trebled since 2019. This has been put down to the increase in demand for equity release, although the current number of products may be impacted by recent interest rate rises.
It is vitally important that, if you are considering releasing equity from your home, you seek professional advice from an expert. An expert will be able to help you to understand the different equity release products available and to determine which one suits you.
The equity release adviser will begin by discussing the main two categories: the first covers lifetime mortgages and home reversion plans and the second will review the requirement for single lump sum/drawdown and a cash reserve. Your adviser will help you to identify how the different equity release mortgage types would fit with your overall objectives and how the interest rates may differ depending on the type of product you choose.
Minimising the overall charges
Finding the right equity release advice can help you find a lifetime mortgage with a competitive interest rate and the most suitable costs and fees.
It is possible that, in the future, you would like to pay back some of your equity release plan and the guidance provided by a professional adviser can help you to find a lifetime mortgage with fixed and defined early repayment fee, so that you can effectively plan your finances.
However, should you decide to opt for a drawdown product, then it is also an important fact to be aware that you will only pay interest on the amount you have drawn down.
Plan for any unforeseen costs
As part of your discussions with your adviser, they will explain the important point that you will be paying compound interest on a lifetime mortgage, which means that the total amount you owe can increase quickly.
The housing market is known to fluctuate over the years. This fluctuation can have an impact on your equity release. For example, should you survive for many years after taking out a lifetime mortgage, if the housing market moves downwards, you may find that the debt on your lifetime mortgage eventually exceeds the value of your home. This is known as negative equity.
To prevent finding yourself in a position of negative equity, it is vitally important that you take out a plan with a lender approved by the Equity Release Council. These approved lenders can provide a no-negative-equity guarantee, which ensures you will never owe more than your property is worth.
This future planning to protect your estate from extra costs is an important aspect of equity release advice. The professional financial adviser will also provide a comprehensive breakdown of the plan’s cost to cover you over your lifetime, so you realize all of the financial implications of your decision.
Safeguard your estate’s inheritance
One of the most important facts to realise about equity release is that, if you decide to take a product there will inevitably be a reduced amount you are able to pass on to your family in inheritance. This is because your house will normally be sold in order to raise the funds needed to repay the mortgage. This means there will be less to pass on.
During your discussions, your equity release adviser will explain to you how to maximise the value of your estate. For example, there are a number of equity release products on the market that provide the facility to “ring-fence” an element of the equity in your home to form part of a guaranteed inheritance to your loved ones.
It is important to remember to talk about your plans with your family prior to taking out an equity release product. It is possible that they would prefer to support you financially in order to protect their future inheritance.
Understand if equity release is right for you
Equity release is not for everyone. Accessing professional advice can help you to understand your current ‘needs’ and your future ‘wants’ to determine if it is right for you. It is worth noting that by using a portion of your property value now will reduce the overall value of your estate and therefore over time this could affect your entitlement to means-tested benefits.
Your equity release adviser will review and take into account all options available to you before recommending this type of product to you.