How to check whether equity release is right for you

Your first steps explained  

Equity release can give homeowners aged 55 and over a way to access some of the value tied up in their property without having to move out. People use it for many different reasons, from boosting retirement income and funding home improvements, to helping family members financially.

Choosing whether to go down the equity release route is a big decision that has long-term implications, especially if you choose not to pay all or some of the interest charges as this will affect the amount you leave to your loved ones in the future.

To help you begin to understand whether it’s right for you, here are a few steps you can take before making any decisions.

Read up on how equity release works

The most common type of equity release is a lifetime mortgage, which allows you to borrow against the value of your home while still retaining ownership. You don’t have to make monthly repayments because the loan, plus any accrued interest, is usually repaid when the last remaining homeowner passes away or moves into long-term care. Typically, this is via the sale of your home.

Most new plans allow you to make voluntary repayments of the loan, typically up to 10% of the original loan amount each year. Others let you pay some or all the interest each month to prevent the loan from growing. 

You don’t need to become an expert, as you will need to take professional advice, but understanding the key points can make later conversations easier.

Things you may want to read about include:

• How lifetime mortgages work.
• The pros and cons of equity release.
• How compound interest works.
• Early repayment charges.
• Potential effects on inheritance.
• The potential impact on means-tested benefits.

Think about why you want the money

The reason for releasing money from your home can make a difference to the options you explore. Ask yourself:

• Is it for a one-off expense or ongoing spending?
• Do you need access to all of the money now, or would a fund you can dip into be better?
• Is there a particular goal you want to achieve?

Having a clear purpose can help you better understand what type of solution may fit your circumstances.

Compare drawdown and lump sum options

Not all lifetime mortgages work in the same way.

• A lump sum lifetime mortgage gives you the money upfront in a single payment.
• A drawdown lifetime mortgage allows you to release an initial amount and keep a reserve facility available for future use if required.

Some people prefer the certainty of receiving all of the money immediately. Others prefer the flexibility of accessing funds over time, which also usually reduces the interest that builds up.

Taking the time to understand both approaches can help you see how they differ and which may better match your needs.

Explore the alternatives

Equity release is one option, but it is not the only option. Depending on your circumstances, alternatives could include:

• Accessing money in savings or investments.
• Downsizing to a smaller property.
• Using existing retirement income.
• Borrowing what you need from your family.
• Checking whether benefits or other financial support are available.
• Looking at other borrowing options where appropriate.

Considering the alternatives to equity release gives you a fuller picture of the choices available so you can make a confident, informed decision.

Ask yourself the following questions:

• Would using savings or investments meet your needs without needing to release money from your home?
• Could you downsize your home or move to a less expensive area to free up cash from your home?
• Could your loved ones lend you the money you need?
• Are there any benefits or financial support you might be eligible for that you haven’t checked yet?

Talk to family if you feel comfortable doing so

You don’t need your family’s permission to take out equity release, but many people naturally want to involve their loved ones in the discussion. 

Having a conversation can sometimes bring up questions you may not have thought about, particularly around inheritance expectations or future plans. You may well find that your family is supportive of you unlocking some of your equity, especially if you have been worried about your finances and have found a potential solution.

Topics you might discuss include:

• Whether family members expect to inherit all or some of the property.
• How important is it to you to preserve as much inheritance as possible?
• Any future plans to move or downsize your home.
• Long-term financial plans.

Bear in mind that gifting to loved ones is a key reason that many people unlock tax-free cash from their home. Accessing cash for yourself, together with a lump sum for your children, could enable you to gift a ‘living inheritance’ to them now, which may be when they need it most.

Know when it makes sense to speak to a specialist

Once you have a clearer idea of why you may want to release money from your home and the options you want to explore, personalised advice is an important next step.

Equity release products can only be arranged after receiving regulated financial advice. A specialist equity release adviser can help explain how different products work, talk through the potential advantages and drawbacks, discuss alternatives and provide personalised illustrations and quotes based on your circumstances.

Choose an adviser who puts your needs first

Equity Release Wise is a member of the Equity Release Council, which sets standards designed to promote safeguards and consumer protections across the industry. Our selected advisers are also members, and are authorised and regulated by the Financial Conduct Authority, meaning you can be confident that any advice you receive is tailored to your circumstances and follows the standards and rules designed to help protect consumers.

Remember, speaking to a specialist does not commit you to going ahead. It can simply help you understand your options more clearly and decide whether equity release is something you want to explore further.

We don’t want anyone missing out on specialist equity release advice just because they don’t have ready access to cash. That’s why your initial advice, quotes and information from our selected advisers come at no cost.

If you do decide to go ahead with a recommended plan, advice fees are only paid once your application completes. In many cases, fees can simply be taken from the money you release from your home, rather than paid upfront.

You can get in touch with us today to arrange advice by calling 0808 178 3055, or request a call back at a time that suits you.

Take your time

Big financial decisions are rarely ones you want to rush, and equity release is no exception.

The aim is not to get to a quick yes or no. It is to understand your options, ask questions and feel comfortable that any route you choose fits your circumstances and future plans.

Taking time to work through the steps above can help you feel better informed and more confident about your next steps.

Please note: This article is provided for information purposes only and does not represent financial, mortgage or investment advice. If in doubt, you should seek independent financial advice. Think carefully before securing other debts against your home.