Equity Release
Most people’s main asset is their house but many may be facing later life when they are asset rich but cash poor…meaning that although they have money in their property, or properties, they are unable to access this on a daily basis, or as and when they need it, to pay for necessities and therefore are ‘cash poor’.
Equity release has been given a bad press in recent years and so below we look at some of the positives and negatives of releasing equity from your property.
So, what are the advantages to equity release schemes?
The monies released from the property are tax free.
You can gain access to money that is tied up in your property without having to move or downsize.
You can use the money released to make gifts to loved ones.
Most companies will guarantee you against any fall in property price if the value of your property falls below what is owed.
This means that if the property market crashes and the amount borrowed is more than the value of the house, the lender will meet the shortfall, putting you at no risk.
Most schemes do not require a monthly repayment.
With most schemes the interest rates are fixed for the entirety of the scheme meaning that you will know exactly what will be owed when the scheme comes to an end.
Some schemes offer a ‘draw down’ option where monies are accessible but interest is not charged on this unless it is drawn down and used. This means that you can have peace of mind by knowing that funds are available should you need them but if they are not used then there is no interest charged.
What about the disadvantages…
As interest is added to the final debt, rather than charged monthly (compound interest) it means that the balance can rise dramatically. Although, as seen above, the final amount due will be known from the outset.
If you want to repay the debt early there may be hefty penalties for early repayment. This will depend on the plan and so it is important to consider this at the outset.
An injection of cash into your account could have an impact on any state benefits that you receive such as means-tested benefits, Council Tax, Pension Credits and/or NHS optical and dental appointments.
You will be unable to secure any other loans or charges against your property once commencing an equity release scheme.
It is therefore extremely important to speak with an independent professional before embarking on any equity release scheme. You can then look at the types of equity release schemes appropriate for you and your needs and weigh up the advantages and disadvantages and whether it is the best option for you.
If you would like a FREE chat to discuss your options, get in touch on info@TotalLegacyCare.co.uk or 01727 865 121
Leah Waller
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