Equity release is a great option for those who want to stay in their homes but free up equity in the form of tax-free cash. This can be done via a lifetime mortgage or a home reversion plan and with over 100 types of plans available, it is a fast-growing financial product.

Is Equity Release a Safe Option? 

Equity release is a safe option that is regulated by the Financial Conduct Authority (FCA). This means that, regardless of which type you choose, there is a great deal of consumer protection in place for senior living.

Other safeguards include the Equity Release Council (ERC); this trade body ensures policies such as a no negative equity guarantee for equity release plans and expert legal and financial advice.

The Cost of Equity Release

Many are put off of equity release as they believe it to be expensive. When you take out a lifetime mortgage (either in the form of a lump sum or as a regular income), interest will be added to the total loan amount. This means that the repayment is deferred and you will not need to pay any of the interest until the last survivor dies or moves into long term care. 

However, due to the compound interest this could work out to be very expensive. In order to avoid such a large amount of debt, some products offer the option to repay the interest earlier.

Future Expenses

Equity release is a safe option but it must be considered beforehand any expected future costs. If you free up equity and use it for different purposes now, you will have less money to depend on in the future. This is especially important for those considering downsizing, relocation or long-term care facilities in the future.

If you take out equity release, no other loans can be taken out using your property as collateral. Before taking any action, you should consider any future loans or payments that may be needed.

Implications for Inheritance 

Something worth noting when considering equity release is the impact that it will have on future inheritance. If you take out an interest roll-up plan with your equity release, there may be less to pass on to your loved ones as an inheritance. Additionally, the majority of equity release plans require the scheme provider to be paid back first after the individual dies or moves out. Only the leftover money will be available as an inheritance for family members.

Freeing up cash from your home will also reduce the value of your overall estate. This could potentially affect eligibility (both future and current) for any state benefits such as council tax or pension credit.

Like any financial decision, before taking out an equity release plan, you should assess the pros and cons to ensure that it is the safest and most effective option for your needs.