Considering Equity Release? Some Things You Need to Know

In 2024, with the housing market constantly evolving, more and more people over 55 are turning to equity release as a viable option for financial flexibility. However, it’s not a decision to be taken lightly. Here’s a breakdown of the six essential things you need to know before diving into the world of equity release.

1. Lifetime Mortgages: The Costly Option

A lifetime mortgage, the most popular form of equity release, allows you to borrow against your home. The loan, plus interest, is repaid when you pass away or move into long-term care. The catch? These mortgages are pricier than standard ones. As of September 2023, the average interest rate was 6.63%. Since there are no mandatory monthly repayments, the interest compounds, making the total cost higher over time.

Key Points:

  • Eligibility starts at age 55.
  • The older you are, the more you can borrow, up to 60% of your home’s value.
  • The accumulating interest makes it more expensive in the long run.

2. Saving Money with Drawdown Mortgages

To minimise costs, consider a drawdown lifetime mortgage. This option lets you take out money as needed, reducing the overall impact of compound interest. In late 2023, over half of the customers chose this route, indicating its growing popularity.

Key Points:

  • Borrow in smaller chunks.
  • Pay interest only on the amount withdrawn.

3. The Possibility of Partial Repayments

Although lifetime mortgages don’t require immediate repayments, letting the interest build up can significantly increase your debt. Some plans allow penalty-free partial repayments, usually up to 10% of the loan annually, helping to keep the debt in check.

Key Points:

  • Avoid accumulating excessive debt.
  • Look for plans with no penalty for partial repayments.

4. Switching Providers, A Way to Save

If you already have a lifetime mortgage, you’re not stuck with it. Switching providers, or even plans within the same provider, could lead to lower interest rates and substantial savings. However, switching requires regulated financial advice, just like taking out the initial plan.

Key Points:

  • Consider switching for better rates.
  • Always seek regulated financial advice when switching.

5. Exploring Alternatives to Borrowing

Before committing to a lifetime mortgage, explore other borrowing options. Personal loans and credit cards might be more suitable for smaller amounts. Additionally, downsizing your home could be a more cost-effective solution. Remember, equity release reduces the inheritance for your loved ones, so it’s crucial to discuss this with your family.

Key Points:

  • Consider personal loans or credit cards for smaller loans.
  • Downsizing might be a more economical option.
  • Equity release affects your inheritance plans.

6. The Importance of Professional Advice

Arranging a lifetime mortgage isn’t a DIY project. You need regulated advice from a qualified equity release adviser, as required by the Financial Conduct Authority. It’s advisable to choose an adviser who can access a wide range of products, not just a few from specific companies.

Key Points:

  • Professional advice is mandatory.
  • Choose an adviser with a broad market view.

In Conclusion

Equity release, especially in the form of a lifetime mortgage, is a significant decision with long-term financial implications. It’s essential to understand the costs, alternatives, and the need for professional advice. As 2024 sees a rise in interest in equity release, being well-informed is more crucial than ever.


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