You're retired - working on, benefits, equity release
Is equity release right for you?
By Paul Davies
Article 4 of 4
Is equity release right for you?
Equity release can seem appealing, but is it the right way to get some extra cash? We weigh up the pros and cons.
Equity release schemes are designed to be a lifelong commitment, so, if you change your mind, need to move house or want your equity for something else later, you could find yourself seriously restricted.
If you do take one out, you should consider checking to see if you can get a better deal once the early-repayment charge period has ended. This is particularly true at a time of historically low interest rates.
The Which? Money Helpline has a team of qualified experts that can help answer your questions on equity release. Trial Which? for just £1 and speak to one of our experts.
Equity release: how your debt grows
The graph below illustrates the way your debt could grow over time, reducing the equity you're left with.
It shows how a debt of £40,000 would increase with a roll-up lifetime mortgage at the average fixed rate of 6.9% (AER 7.09%), compared with releasing the same amount through a typical home reversion scheme by selling 48% of your home if you were a 70-year-old woman with a £200,000 property. The increase in the value of the property is also shown if it grew at a rate of 1% a year.
Equity release alternatives
There are several alternatives to equity release that may be more suitable, depending on your circumstances:
- Unsecured loans: If the sum you want to borrow is small and you can meet repayments out of retirement income, it might be cheaper to take out an unsecured personal loan.
- Mortgage extensions: If you haven't paid off an existing mortgage by the time you retire, it may be possible for your current lender to extend the term for another five or 10 years. Not all lenders will deal with those aged over 65, however.
- Downsizing: If you need to release a substantial sum, selling your house and moving somewhere smaller will almost always let you keep more. The costs can be high, with agent fees, removal costs and stamp duty to consider. Read more about property downsizing.
- Benefits and grants: Those on a low income who are borrowing for home improvements or conversions to deal with disability may qualify for local authority grants.
Equity release advice
Before using equity release, seek professional advice. Advisers should hold ER1, CeMAP and CeRER qualifications. You can find these through the Society of Later Life Advisers.
The Which? Money Helpline has a team of qualified experts that can help answer your questions on equity release. Sign up to a £1 trial with Which? and speak to one of our experts.
A free alternative is the charity StepChange, which compares providers, although you will still have to pay a fee to arrange an equity release deal.
Tips for choosing the right equity release scheme
- Speak to an independent financial adviser before deciding whether to take out an equity release scheme, and get independent legal advice.
- Explore other options and find out how equity release would affect your entitlement to state benefits.
- Borrow the minimum amount you need to or choose a drawdown scheme to give you the option to borrow money as and when you need it.
- Consider taking out a scheme that lets you make interest payments each month if you can afford to.
- Choose a scheme with no early-repayment charges or ones that apply only for a limited period.
- Last updated: June 2016
- Updated by: Ian Robinson