What is The Catch With Equity Release? (The Pros & Cons in 2024)
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Is equity release a good idea?
Author Paul Murphy Updated November 2023
If you don’t want to downsize to raise cash from your home, is equity release a good idea?
If you’re a homeowner over 55 and need extra income or a cash lump sum, you could release some of the value of your home that has built over the years.
Repayments are voluntary and income checks are not carried out and can provide financial support through your later life and retirement years.
From repaying an existing mortgage or personal debt, a gift to help your family financially, home or garden improvements, or cover the costs of care in the home, there are many benefits of releasing equity, it can offer a great deal of options and is certainly worth exploring.
Later Life Finance explains how equity release schemes can help reduce the financial pressure in later life.
We look at the pros and cons to help you decide whether is equity release a good idea.
If you are exploring the idea and wondering who is the best company to speak to about equity release, Later Life Finance provide a complete start to finish broker service.
Let’s get started!
Very good
Michael Dilucia08/07/2023My equity release application had been rejected 3 times when I was referred to Peter at Later Life. He was extremely thorough, patient, friendly, and knowledgeable. He helped us with every step of the application and explained everything clearly and patiently. We finally succeeded in getting the equity release we wanted. I cannot recommend them highly enough. Their service goes above and beyond. Very happy customers!Sherry Izadi08/07/2023Paul has been a rock throughout the most traumatic time of my life. His patience has been endless as I was clueless about my financial complications after the death of my husband. I recommend his services to anyone out there needing his advice and guidance.Hazel Franklin20/10/2022Paul Murphy was superb in sourcing and arranging my lifetime mortgage and his professionalism was second to none. I would recommend him without reservation.Tony Holloway31/03/2022Paul did a first class job helping me secure a great rate for my equity release proposition. I like the idea of equity release but at the right rate Paul was competitive and at the expense of his own commission made it happen. I really felt I was the focus not him. The big firms with the fancy marketing were almost twice as much in terms of all- important compound interest. I highly recommend Paul, he works for you, not 'them'. I also felt safe with the solicitors he recommended, they too sent a first class guy who was a pleasure to work with. Equity release is not cheap, it's vital that people like Paul work for your best interest (pun intended). What price can you place on the latter peace of mind having financial security brings. Highly delighted.Mike Murray31/03/2022We have used Paul's services twice in just over a year. Initially it was to change provider as better interes rates were available. On the annual review it transpired that no early repayment charges would be levied. Being a Yorkshire man l searched for best rates, providers and advisors and it was back to Paul. I have no loyalty where money is concerned but transparency, knowledge and reliability are paramount. That's exactly what we got. Good service, excellent communication, expedience and saved money. Second time around not even a direct fee to pay for the service. Another provider did come up with an option however their fees were somewhat prohibitive, when l brought this to their attention they offered to slash the fee. Not good practice. So after all the waffle. I have no reservations in recommending Paul's services.Anthony Grey08/09/2021We had reservations about Equity Release plans and approached a number of leading companies. Glad we settled with Paul Murphy and Responsible Life. He was patient and personable and guided us through the process. We received a most professional service, never felt under pressure. The plan is now in place. Excellent communications throughout. No hesitation, would highly recommend Paul. Jw.Jeffrey Wade07/01/2021A truely excellent service from Paul. From the moment we made contact with Paul he provided clear balanced advice supported by any documentation we asked for. We researched the market at the same time, independently, and it was evident Paul was offering a very competitive product that met our needs exactly. Paul’s speed of communication was outstanding, by e mail or phone, and we literally had replies within minutes. An extremely professional and friendly service and we were delighted Paul secured the deal we wanted. We wouldn’t hesitate to recommend Paul’s expertise, advice and resultant product suggestions to anyone considering these financial products. Thank you!!Priors Bob26/12/2020Brilliant service from this company! Paul was so helpful all through the process and made everything so simple to understand! Thank you Paul, you are a star! Would definitely recommend!Alice Froggatt08/11/2019
Short Summary
We review whether equity release may be a good idea for your individual circumstances and cover the following topics:
What are the pros and cons of equity release?
Is there a catch with equity release?
is equity release worth it, is it a good idea?
Is now a good time for equity release?
Is equity release safe and worth it?
Downsizing protection explained
What is equity release?
Equity release is a loan against your home which lets you access the equity in the form of cash.
There are no monthly repayments to make and the cash is tax free.
There are two main types of equity release:
Lifetime mortgages – a loan is taken out against your home and is only repaid once the last surviving homeowner dies or moves into long-term care. You continue to own your home with this option.
Home reversion plans – This involves selling part or all of your home in return for a cash lump sum. You can remain living there rent free until the last surviving homeowner dies or moves into long-term care.
For this reason, we will focus on an in depth overview of lifetime mortgage schemes in the article. Later Life Finance have access to the best equity release companies in the UK for comparing all your options.
The Equity Release Council, have stated over 93,000 UK homeowners released money from their home with equity release in 2022. We explore what’s important to consider and whether it’s a good idea or not.
Try our free equity release calculator for instant results.
Is equity release ever a good idea?
The answer to this questions is yes, so long as there is a real requirements and expert advice is sought.
Modern lifetime mortgages allow optional repayments to be made to maintain control of the compound interest and preserve more equity as an inheritance.
Lifetime mortgages can also be used to reduce your inheritance tax bill as the money borrowed is deducted from your estate when you pass away.
In this comprehensive guide, we’ll delve into the ins and outs of the best lifetime mortgages – from understanding how equity release works and the different options available, to finding the best providers in 2023, to explaining the difference between lifetime mortgages and equity release.
Is Equity Release Really Worth It?
We are frequently asked is equity release actually worth it? Whether it’s worthwhile or not depends on you and your requirements, and it’s important to consider all the alternatives when thinking about whether equity release is right for you.
Later Life Finance limited are a specialist lifetime mortgage broker authorised and regulated by the financial conduct authority (FCA).
As experts in later life mortgages we review the world of the lifetime mortgage and the important points to consider when deciding whether it is right for you. Access our free equity release cost calculator for more figures.
Are Lifetime mortgages a Good Idea?
Lifetime mortgage schemes have become increasingly popular among homeowners aged 55 and over. They offer a way to access funds tied up in property without the burden of monthly repayments.
But before diving in, it’s crucial to understand how the mortgages work, their interest rates, and the potential impact on your financial future.
Let’s start by exploring the basics of the lifetime mortgage, the most common equity release product.
Lifetime mortgages allow homeowners over 55 to borrow against their property. With optional repayments the mortgage is settled when the homeowners pass away or go into long term care.
Voluntary repayments mean compound interest can be avoided or reduced to help preserve more equity for your beneficiaries, or for downsizing and settling the mortgage and buying another home.
No negative equity guarantee for Equity Release Council members ensures you will never owe more than your home’s sale proceeds; protecting you and your family.
Possible to port (move) the lifetime mortgage when moving to a suitable property, or sell property and repay debt with sale proceeds (subject to exit fee’s)
Downsizing protection to repay without any exit fees if you move home and settle early
Access professional equity release advice with Later Life Finance.
We help you determine if a lifetime mortgage suits your needs and review lump sum or drawdown options, voluntary repayments and exit fees. It’s crucial to seek independent financial advice on all your options.
What are the pros and cons of equity release?
The pros of equity release
Like any financial scheme, equity release has its own pros and cons. Whether a lifetime mortgage is the best option for you depends on your specific circumstances and any future plans.
For example if moving home, certain lenders offer more flexibility and repaying the mortgage early.
We review the advantages of equity release and compare against the disadvantages for a balanced view.
Tax free money – the cash you release is free from tax and yours to use as you wish.
However, if you have an existing mortgage in place, this needs to be repaid with the money you release from your home.
Optional monthly repayments – Compared with a typical mortgage this offers much more flexibility.
You still own your home – With a lifetime mortgage you continue to own your home. You can remain living in your home until the last surviving homeowner dies or goes into care.
FCA regulated – Modern equity release is safe and fully regulated by the Financial Conduct Authority (FCA) with industry codes of conduct overseen by the Equity Release Council (ERC).
No negative equity guarantee – plans provided by members of the Equity Release Council guarantee that you will never repay more than the value of your home.
Porting – You have the freedom to move home (port) as long as the new property is mortgageable
Drawdown facilities – you can choose to release the cash in a lump sum or as and when you need it with access to a reserve facility on a drawdown lifetime mortgage.
Voluntary repayments – plans provided by Equity Release Council members allow you to make voluntary repayments which can help reduce the overall cost of the loan.
Inheritance guarantee – you can guarantee an inheritance by protecting a percentage of the property value for your beneficiaries.
The cons of equity release
Compound interest as you pay interest on the loan and on the interest already accrued, the amount you owe grows at a faster rate.
Impact on inheritance – The loan is repaid from the sale of your property and will reduce the inheritance you leave.
Early repayment charges – Equity release plans include penalties for repaying the loan early.
Affects Means Tested benefits – releasing equity could negatively impact on any means tested benefits
Modern lifetime mortgages offer greater flexibility, such as voluntary repayments, downsizing protection and the option to protect a percentage of your property value or make interest repayments to a percentage of the amount released without incurring fees
Access expert equity release advice with Later Life Finance.
What's the catch with equity release, is it safe?
Modern Equity release is safe. Providers and schemes of equity release loans are regulated by the Financial Conduct Authority (FCA) and overseen by the Equity Release Council (ERC).
Strict regulation, rules and safeguards ensure homeowners are protected and you are guaranteed to never to owe more than the value of your home.
With a negative equity guarantee in place, you and your estate will be protected.
Here’s how the Equity Release Council’s guarantees protect you:
Equity Release Council safeguards
Interest rates must be either fixed or if variable, if they are variable, there must be a “cap” (upper limit) which is fixed for the life of the scheme
Homeowners must be able to stay in the property for life, or until you move into care
You have the right to move (port) to another property, as long as the property meets the lenders criteria
A ‘No negative equity’ guarantee which means in the unusual event of negative equity arising due to the equity release plan, you will never owe the provider more than the value of your home.
This safeguard protects you and your estate under these circumstances.
The Equity Release Council also provide strict rules and guidance which stipulate that you should only take out equity release once you’ve received professional financial advice and independent legal advice with a solicitor.
Access expert equity release advice with Later Life Finance.
How much equity can i release from my home?
When considering how equity release works and how flexible it is for moving home, downsizing protection is an important feature which provides the option to move home and settle the mortgage without penalties.
This flexibility is important if you plan on releasing cash and downsizing in the future, and require a scheme without early repayment charges if you wish to repay the lifetime mortgage early. This provides a risk free solution for moving home which your equity release adviser will discuss with you when providing independent advice.
Downsizing Protection
When considering how equity release works and how flexible it is for moving home, downsizing protection is an important feature which provides the option to move home and settle the mortgage without penalties.
This flexibility is important if you plan on releasing cash and downsizing in the future, and require a scheme without early repayment charges if you wish to repay the lifetime mortgage early. This provides a risk free solution for moving home which your equity release adviser will discuss with you when providing independent advice.
Is now a good time for equity release?
Equity release is currently a popular option to consider as the costs of living increase, homeowners may benefit from a cash injection.
The best time to take equity release depends on your requirements and whether you need to raise money, or whether you can wait until you need the money.
If you feel ready to to discuss which equity release provider can offer you the best solution, we review plans from each lifetime mortgage provider to ensure we source the most suitable scheme.
Are there any risks with equity release?
The main risks with equity release are
Compound interest
Reduced inheritance for beneficiaries
Risk of less equity for care costs
Risk of impacting on means tested benefits
However these risks can be mitigated with expert advice and ensuring you fully understand all your options.
Summary
Equity release can be a good idea as long as you consider all your options with an expert.
Weighing up the pros and cons and answering whether now is the best time for equity release for you will help you decide what’s best.
Consider moving home and downsizing or using some of your savings first, and book a call with Later Life Finance to discuss all your options without any pressure or obligation to proceed.
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