Tuesday 26 April 2016

Considering An Equity Release? Read This First!

If you’re over 55, or you’re taking care of an elderly parent, then you may have considered equity release. This will allow you to access the value in a property without anyone having to sell or move. However, any money which you access through this has to be paid back with interest. One the one hand, it’s a way of getting your independence back, and living the way you want to. On the other, it can mean that you’re cutting some of your family out of the money you’d otherwise lead behind. Obviously, equity release isn’t a decision that should be taken lightly. Here are some things to consider before you proceed.

Image from Wikimedia

First of all, make sure you think about the alternatives. You may have been bombarded by junk mail and spam telling you all about the benefits of equity release. In this case, it can be easy to assume it’s the best solution to your problems. However, there are always alternatives. You should be looking into these before you make any big decisions regarding the future. One popular alternative is simply moving to a smaller home. There are expenses involved in downsizing, true. However, it will usually cost you far less than the set-up charges and interest of an equity release. Alternatively, you could ask your close family for support. I know that it may feel strange asking for help from your younger family. However, if you can swallow a little pride, getting help from those who care about you can be a great way out of your financial trouble. Whatever you decide on doing, make sure your family are informed throughout the process.

If you decide you are going through with an equity release, you should get advice from anywhere possible. There are countless equity release schemes available. With the wide selection in something you’re new to, it can be extremely hard to decide on what’s best for you. If possible, go looking for an independent equity release specialist who will be happy to talk you through the process. Failing that, there are a lot of online resources you can use to find out the full extent of your options. Tools like an equity release calculator could be a pretty good place to start. However, it’s always best to talk to someone in person. Before settling on an adviser, ensure their experience fits your personal circumstances. This is especially important when it comes to benefits, long-term care and so on.

Image from Pixabay

The next thing to consider is how much you need to borrow. Note how I say “need” and not “want”! Only ever borrow the amount you need to spend or give out. If you leave any cash on deposit, you’ll earn far less from this compared to the interest you’ll have to pay for borrowing it. Furthermore, borrowing money could mean that you lose out on certain benefits you otherwise would have been entitled to. Alternatively, you could look into a drawdown plan. Through this, you have a cash reserve which you can use in portions, rather than receiving a lump sum. The interest is only payable on the money you take out as and when you need it. for a lot of people, this is a far more cost-effective option.

When it comes to a lifetime mortgage, make sure you don’t overlook the APR. The annual percentage rate of a mortgage is the cost of borrowing over a year, including any fees as opposed to the headline rate. Far too many people completely ignore this, and end up tied to agreements which they never wanted. In some situations, the APR can add a whole 0.5 percent onto the headline rate. Usually, this is the cost of setting up the arrangement in the first place, and differences in how the interest rate is calculated.

Image from Pixabay.

Finally, make sure you’re getting all the legal counsel you need. Find a solicitor who has some proven experience working with equity releases. I know that you may be looking to save as much money as possible. However, without a legal professional on board, the whole process can be longer and less cost-effective. While equity release lawyers were hard to find in the past, these days there are many who have specialised in this niche. Your advisor should be able to give you a good recommendation. However, if you don’t trust their choice, go looking yourself. Consider these points, and you’ll have a much smoother experience with your equity release. My final piece of advice is to keep your long-term goals in mind. If you don’t have a set goal, a release could do more harm than good!

Jada x


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