For those over 55 looking to free up funds from the equity held in their property, equity release can be an attractive idea. But some people may be cautious about disclosing stocks, especially if they’ve heard horror stories about them in the past.
Some equity home equity products are not favorable to clients and even in today’s highly regulated market, people should approach equity home equity with caution as there are some untrustworthy equity home equity lenders that you must avoid and use who try to capitalize on people’s lack of knowledge.
Those looking for an equity release product should ensure that the lender and broker are members of the Equity Release Council as this gives them additional protection.
So, is releasing equity in 2022 a good idea? What advantages and pitfalls might borrowers encounter?
This short guide breaks down the complexity of equity release in a nutshell.
What types of equity releases are there?
There are two types of equity releases in the UK, lifetime mortgages and home retirement plans.
Lifetime mortgages are mortgages that are secured against your property. You pay no monthly mortgage payments (unless you choose to) and the property is sold or refinanced by your beneficiaries in the event you enter long-term care or die.
This is by far the most used equity release product.
Home Reversion Plans
With home reversion plans, the property is technically sold to the lender and you can continue living in it until you die or enter long-term care. You become the lessee of a portion of the property that you retain ownership of.
This isn’t as common as a lifetime mortgage, but depending on your personal situation, your agent can tell you this is the best option for you.
The benefits of equity release
Equity release allows you to borrow money against the equity you hold in the property. Typically, lenders will allow you to borrow up to 50% of the property’s value.
To qualify, you must be over the age of 55 and no other financial products may be secured on the property upon completion.
Funds for releasing equity can usually be used at one’s own discretion as long as it is not for illegal purposes. There are no requirements that you spend it on a specific area and unlike traditional loans and mortgages, where you may have to disclose your reasons for needing the money, you don’t have the same restrictions.
This means that with equity release you can do the following and more:
- Buy a new car.
- Giving away money to children or family members.
- Use the money to buy a second property.
- Take a vacation.
- DIY work.
- Buy a caravan or mobile home.
The range of what you can use the money for is huge. You can choose to withdraw the money in one lump sum or as a regular payment, or some people prefer to combine both an initial lump sum and regular payments thereafter.
There are other benefits that only apply to products approved by the Equity Release Council. These include:
1) No negative equity guarantee
2) Permanent tenure in the property until death or removal to long-term care
3) Transferability from one property to another
4) Tax Benefits
There are a number of disadvantages to releasing equity. The most common are that by not servicing the interest you can erode the legacy you leave to your next of kin and it is a lifetime commitment.
There are other potential downsides that your equity release broker will detail in your initial consultation.
Equity release can be a lifeline for those looking to raise money from their property without selling it. It’s definitely worth considering in 2022, but you should do so with caution and discuss your circumstances with a reputable equity release broker.
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