The main disadvantage of freeing up equity is that it doesn't pay you the full market value of your home. You will receive much less money than you would from selling the property on the open market, although, of course, in that situation, you would still have to find somewhere else to live. The release of capital can provide a useful way for older homeowners to access the equity accumulated on their property. It won't be right for everyone, but under the right circumstances, the capital release could be used to supplement your pension income or provide a lump sum, all while you live in your home.
As with many products, the release of capital has its drawbacks. For example, it's a loan secured against the value of your property, meaning you'll have to repay it when you die or go into permanent care. And the amount of the inheritance you can leave behind will be reduced. Other considerations can be found below.
To be eligible for equity release, you must be at least 55 years old, own your own home, and have sufficient equity in your property, which is the difference between the value of your property and any outstanding loans or mortgages you may have insured against it. Choose the Right Way to Release Equity for You and Your Family Whether a Lifetime Mortgage or Housing Reversal Plan is in your best interest will depend on a wide range of circumstances, such as how much you expect to leave your family as an inheritance. When freeing up capital, it's tempting to focus on the immediate momentum you'll get from the money you unlock, but you need to look at how it will affect your future choices and your financial situation going forward. For many homeowners over the age of 55, freeing up capital could be a good option to borrow money to supplement their income, pay off debts, enjoy some of life's luxuries or help their loved ones financially.
Of course, capital release has its drawbacks, so you should always talk to your financial advisor before deciding on a capital release plan. The problem with capital release is that interest is aggravated, so it grows much faster compared to a residential mortgage. Considering the pros and cons of releasing capital and reviewing both the advantages and disadvantages will help you decide whether freeing up capital is the best option for you. Since 1991, the industry has also been overseen by its governing body, the Equity Release Council (ERC).
However, it will not be the right choice for many people, so it is essential that you understand the advantages and disadvantages of capital release plans right from the start. Your entitlement to certain benefits is established on an income control basis, such as pension credit, for example, and any money you receive through capital release could mean that you no longer qualify. Whether the capital release is safe is a common question; all providers are members of the Equity Release Council that will provide you with guarantees and, most importantly, you will never lose your home. While there are no potential dangers or difficulties as such, you should understand that releasing capital will reduce the inheritance you leave for your family.
As an additional security measure, ask your lawyer to review the agreement you have with the capital release company before signing it. On the other hand, there are potential disadvantages to capital release, which you should always consider before deciding whether capital release is the right choice for you. Equity release offers safeguards that traditional mortgages don't offer, and it's a good idea to understand what these are while you're thinking about taking out a capital release plan. Rest assured that all Equity Release Supermarket advisors are listed as qualified members of the Equity Release Council.