1. Consider all the alternative solutions available
The decision to release equity from your home is a significant one and shouldn’t be taken lightly. By considering your options you may either eliminate your need to borrow, or reduce the amount you need to borrow.
Any reduction in the amount you release could significantly reduce the long-term cost of the plan and allow you access to better deals with greater flexibility.
The most common alternatives considered are:
- Downsizing – selling and moving to a cheaper property
- Borrowing from family or friends
- Using existing savings/investments
- Claiming all available welfare benefits, such as pension credit
- Home improvement grants
2. Borrow only what you need
Make a detailed list of your immediate spending plans. You don’t want to pay interest on money you don’t actually need.
If you’re likely to need more money in the future, ’flexible drawdown’ plans can provide access to additional funds when needed. This means interest is only charged on the money you’ve actually borrowed. Borrowing money gradually can be far more cost effective than taking a single initial cash lump sum.
3. Think about paying the associated interest charges
If you can afford the payments, the most effective way of managing the cost of any release is to pay the interest on a monthly or annual basis. Many plan providers will allow you to manage the interest via monthly repayments or overpayments.
Even if the full interest payment is not affordable you can significantly reduce the cost by making partial repayments or overpayments.
4. Don’t judge a plan on interest rate alone
While a competitive interest rate is important, you should also consider how your plan will meet your future needs. Some of the questions to ask when choosing a plan include:
- Can the plan be repaid early and are there any early repayment charges?
- Can you borrow additional funds in the future and what costs would be involved?
- Can the plan be moved to another property?
- Who will own the property?
- Is the plan regulated by the Financial Conduct Authority?
- Does the plan meet the standards set by the Equity Release Council?
Any plan you choose must meet your immediate needs AND be flexible enough to adapt to any life changes in the future.
5. Involve family members or a trusted friend
You don’t have to do this but we’d strongly recommend you discuss your plans with family. If you decide not to involve them, you may wish to let them know that any future inheritance will either be reduced or eliminated.
If you don’t involve family members then we’d suggest discussing your plans with a trusted friend. It’s also good to inform the executors of your estate, as they may have to deal with the equity release provider when the house is sold.
6. 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 are considered.
7. Get legal advice
All Equity Release Council-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 advisor will be happy to recommend a specialist solicitor.
8. Don’t borrow money to invest
We strongly advise against releasing funds to make investments. It’s unlikely that any investment would provide a return greater than the costs associated with any borrowing.
9. Consider the impact any borrowing may have on your entitlement to means tested benefits
Having savings in the bank that you don't need could affect your eligibility for benefits, now or in the future. Our advisors will undertake a full benefits assessment to ensure you’re already in receipt of the maximum amounts available and to measure what impact any borrowing may have on your current and future entitlement.
10. Avoid paying for advice
Most equity release companies charge between £500 and £2,000 for advice. But why pay for this advice when the expertise you require is available free from StepChange Financial Solutions? Our service has been established to allow you access to expert advice from qualified advisors without cost or commitment.