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You may have heard things about equity release schemes. Many news items are very negative, but as with everything, there are two sides to the story. It is worth finding out more about it before you make up your mind as to whether it is for you.
What is Equity Release?
Equity release is a scheme for home owners who have no mortgage. It is possible to use the home as collateral on a loan where you are paid back some of the value of the home. When you no longer need the home, it is sold and the amount of the loan, plus interest and fees is paid back to the lender. These loans do vary between companies so for some you hand over the house right away and pay rent to the lender or you may be able to wait for it to be sold after you die.
Is it a Scam?
There has been talk of these schemes being scams. However, like with any financial decision it is really important to research it well. Look into the different lenders and their terms and conditions to see which of them you think looks like it would suit you. It could be wise to use a financial advisor to help you with the decision and you may also want to talk it over with your family. The schemes are available through some more well-known lenders, which you may prefer to choose.
Advantages of Equity Release
Equity release suits home owners who find that they are running out of money and have everything tied up in their property. The money could be used to take holidays, cover living expenses in retirement or passed on to family members. Some people like to pass it on so that they can watch their family enjoy their inheritance early or they may feel they need the money right away rather than waiting.
Disadvantages of Equity Release
You will never get the full value form your home this way. You will be able to release a certain amount of equity but not the full value of the home. The lender will take a cut and also gain from any increase in value in the property between when the deal is arranged and when the property is sold, which could be a significant amount of money.
Is it Right for me?
This very much depends on your personal circumstances. If you are short of money and feel like it would really improve the quality of your life if you had some extra money through your retirement then this could be a good idea. However, if you were hoping to pass your home on to your children then you will not be able to do this if you release equity in it or at least they will not get the full value. You will lose money that you have invested in your home and therefore financially it is not wise but if it makes a significant difference to your happiness then it is worth considering.