There are a number of important things for you to think about if you are considering equity release
The decision to release equity from your home is a significant one. Like all borrowing decisions, equity release must not be taken lightly. Assessing all your options may either eliminate your need to borrow or reduce your actual borrowing requirements.
The most common alternatives considered are:
- Downsizing, by selling your home and moving to a smaller property
- Borrowing from family or friends
- Use of existing savings / investments
- Unclaimed benefit entitlement
- Home improvement grants
Don’t borrow more than you actually need
Make a detailed list of your immediate spending plans, you do not want to be paying interest on any money you do not actually need.
If you are likely to need more money in the future, flexible drawdown plans can provide access to additional funds as required. This means interest is only charged on monies you have actually borrowed. Borrowing money gradually can be far more cost effective than taking a single initial lump sum. Your Advisor will be able to explain the different ways to release equity.
Do involve family members or a trusted friend
Although you are under no obligation to do so, we would strongly recommend that you discuss your plans with family. If you decide not to seek their involvement, you may wish to inform them that any future inheritance will either be reduced or eliminated.
If you do not involve family members then we would suggest discussing your plans with a trusted friend. It is also good practice to inform the executors of your estate, as they may have to liaise with the equity release provider when the plan is redeemed.
Don’t select a plan primarily on interest rate
Whilst obtaining a competitive interest rate is important, you must also consider how the plan will meet your future needs. Below are some of the questions that need to be answered when choosing a plan.
- Can the plan be repaid early – Are there any early repayment charges?
- Can you borrow additional funds in the future – What costs are involved?
- Can the plan be moved to another property?
- Who will retain ownership of the property?
- Is the plan FSA regulated and SHIP approved?
Any plan you choose must not only meet your immediate requirements but must be flexible enough to adapt to any life changes in the future.
Do obtain independent legal advice
All SHIP approved equity release providers require you to seek independent legal advice. Ensure your chosen solicitor has equity release experience and ideally agree a fixed legal fee before proceeding.
Your StepChange Equity Release Advisor can recommend a solicitor.
To any people with mixed feelings about equity release, just ring StepChange Equity Release and you will find out how friendly and helpful they are and how easy it is. We were able to ask what we thought were silly questions. It made a decision which I thought would be difficult seem so easy.
Don’t proceed without specialist financial advice
Seek advice from a qualified and experienced Advisor who has access to all the plans and plan providers in the market. This will ensure that all available options have been considered prior to any recommendation.
Be aware that direct sales teams usually offer tied advice. This means they can only source a solution from a limited range of products and providers.
Do consider the impact any borrowing may have on your entitlement to means tested benefits
Holding additional funds on deposit may impede upon your eligibility for benefits now or in the future. Your Advisor should undertake a full benefits assessment to ensure you are already in receipt of the maximum amounts available and to measure what impact any borrowing may have on your current and future entitlement.
Don’t borrow money to invest
We strongly advise against releasing funds to invest. It is unlikely that any investment would provide a return greater than the costs associated with any borrowing. Equity release plans can provide the option to create a monthly income without the risks associated with investments.
This arrangement may involve either a lifetime mortgage or home reversion plan. To understand the features and risks ask for a personalised illustration.
Contact StepChange Equity Release
You can call us on 08442 641 969. We're open Monday to Friday 9am to 5pm. Alternatively email us with any questions or to request a call back.