If you are sure that equity release is right for you, we’ve put together our top 5 tips to help you make the most of your choice.
1. Think about all available solutions
The decision to release equity from your home is a considerable one and shouldn’t be taken lightly. By weighing up your options, you may either eliminate your need to borrow, or reduce the amount you need to borrow.
The most common alternatives to consider are:
- Selling and moving to a cheaper property (downsizing)
- Using existing savings/investments
- Borrowing from family and friends
- Claiming all welfare benefits available
- Looking into home improvement grants
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 a greater amount of flexibility.
2. Borrow gradually – not the full amount in one go
You don’t want to pay interest on money you don’t actually need. From the moment you borrow, the interest on that amount will start building. Put simply, the longer the duration of the loan, the larger the compound interest you would be required to pay. Borrowing money gradually can be far more cost effective than taking a single initial cash lump sum.
Make a detailed list of your immediate spending plans. If you’re likely to need more money in the future, ’flexible drawdown’ plans can provide access to additional funds when needed. The interest will only be charged on the money you’ve actually borrowed.
3. Don’t judge a potential plan on interest rates alone
Any plan you choose must meet your immediate needs whilst being flexible enough to adapt to any life changes in the future. This is why you should consider how your plan will meet your future needs, alongside it having a competitive interest rate. For instance, one of the main questions to ask would be whether the plan can be repaid early and if there are any early repayment 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 this way.
4. Consider how your benefits will be affected
When deciding to release equity on your property, your eligibility for means tested benefits, such as pension credit and universal credit, may be affected.
Undertaking a full benefit assessment will ensure that you are already in receipt of the maximum amounts available and measure what impact any borrowing may have on your current and future entitlement.
5. Get advice
Do not proceed without impartial financial advice. To ensure all options are considered, seek advice from a qualified and experienced advisor who has access to all the plans and plan providers in the market.
Ensure you use a company that’s a member of the Equity Release Council. All members of this trade body must promise a ‘no negative equity’ guarantee, so your estate will never owe more than your home is worth.
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.