How big is the risk with equity release?
You may be wondering about equity release and if it is a good idea. As with all things, there are pros and cons to consider. With more people opting to release equity in the past 5 years, there have been concerns about the risks involved.
Many are concerned that they will lose their homes, and others are afraid they won’t have enough time to repay the outstanding balance on their equity release; many others are asking how to avoid equity release companies that have bad reputation. Here we will look at all the risks involved in remortgaging to release equity and how you can avoid them.
What is equity release, and is it right for you?
Equity release is like a loan where a percentage of the value of your home is paid to you in a lump sum or monthly instalments.
If you are looking for a large sum of cash without a long waiting period, this would be ideal.
The process takes 4 – 8 weeks and guarantees that you will still have a place to live while paying off the loans.
What are the disadvantages of equity release?
The disadvantage of equity release is that it does not pay out the total market value of your home.
Selling it on the open market will get you the amount you would like, but equity release guarantees you a lump sum payout in a short period.
You will also be allowed to live in the house when you release equity from it, where a sale would require you to find other means of accommodation.
Will I pay interest on my equity release?
Yes, you will pay interest on your equity release with the current interest rate between 3 – 7%.
Our equity release expert, John Lawson, some lenders charge as little as 2.75%, but interest is unavoidable since an equity release plan is for life.
Lifetime mortgage vs savings account
One of the most significant risks of equity release is making more money than you need.
Without the help of a financial adviser, many spend the money and lose track of their funds.
You also pay more money than you would if you had money in a savings account.
Inheritance decrease
Your beneficiaries will have less money to inherit if you die before the equity release mortgage is paid back.
They will be responsible for paying the outstanding amount through additional financial outlets or selling the property to cover the costs.
Common questions
What are the different types of equity release?
There are 2 types of equity release.
A lifetime mortgage allows you to repay the money over 10 years and lets you live in the house while repaying your equity release mortgage.
A home reversion plan allows you to sell a percentage of your home while you live in it, and once you die, the lender can sell your house to recover the cost and pay the balance to your beneficiaries.
Is equity release safe for over 55s?
Yes, equity release can be safe for over 55s, but you will need a steady plan for spending your money if you intend to work cautiously with it.
A financial adviser can help you get ready for equity release from the age of 53 and plan so that you do not waste your money.
Conclusion
As with any monetary agreement or loan, there are risks involved.
The idea is to make sure you know all about them before deciding to invest, primarily if you are bad at repayments or have lots of outstanding debt you cannot manage.
Speak to a financial adviser before investing in an equity release to ensure that it is the right thing for you to do.
