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What You Need To Know About Equity Release

Equity release may seem like a good option when you want some additional money but don’t want to move home.

COST

Equity release can be more expensive when compared to an ordinary mortgage. When taking out a lifetime mortgage you will normally be charged a higher rate of interest than you would on an ordinary mortgage, and the debt can grow quickly if the interest is rolled up. It is worth bearing in mind that house price growth might also be evident.

The plan provider charges a higher amount of interest because they need to factor in safeguards. For example, a no negative equity guarantee (so you will never owe more than the value of your home, regardless of interest payments due, and any changes in property value) and a fixed interest rate for the life of the plan. These safeguards mean the interest rate is different to an ordinary mortgage.

TERM

For lifetime mortgages, there is no fixed ‘term’ or date by which you are expected to repay your loan. The rate of interest of a lifetime mortgage will not change during the life of your contract, unless you take additional borrowing and then it will be only be applicable to that cycle of extra borrowing.

VALUE OF HOME

Home reversion plans will usually not give you anything near to the true value of your home when compared to the sale value on the open market.

FUTURE NEEDS

If you release equity from you home, you may not be able to rely on your property for money you need later in your retirement. For example, long-term care.

FLEXIBILITY

If you decide to move home and take your lifetime mortgage with you, if you decide to downsize later on, you may not have enough equity in your home to do so. In this instance you may have to repay some of the mortgage.

In addition, the schemes can be complicated to unravel if you change your mind.

IMPACT ON STATE BENEFITS

The money you receive from equity release may affect your entitlement to state benefits.

TAX

You will not usually have to pay income or capital gains tax on the amount you receive when it is released from your main home. However, tax may be payable on any further investment of the proceeds.

FEES / CHARGES

You will have to pay arrangement fees of between £1,500 to £3,000, which include solicitor and advice charges. There could also be additional charges.

If you change your mind, there could be early repayment charges to pay, although these would not apply on death or long-term care planning.

ESTATE PLANNING

When you take an interest roll-up plan, there will be less for you to pass onto your family as an inheritance.

Guide to Equity Release Download
Disclaimers:

Equity release will reduce the value of your estate and can affect your eligibility for means tested benefits.

The FCA do not regulate estate planning.

Tax treatment varies according to individual circumstance and is subject to change.

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