Should I take out equity release?
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.
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Equity release: how your debt grows
Based on a £250,000 property, the graph below illustrates the way your equity release debt could grow over time, reducing the equity you're left with.
It shows how a debt of £75,000 increases over time, compared with releasing the same amount using a home reversion scheme. The lifetime mortgage debt accrues at a fixed annual interest rate of 5.5%.
Through the reversion scheme in this example, releasing the £75,000 means relinquishing 70% of the property's value. The property's value increases by 1% each year.
What are the alternatives to equity release?
There are several alternatives to equity release that may be more suitable, depending on your circumstances:
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.
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.
Increasing numbers of lenders are offering retirement interest-only mortgages, where you can pay the interest but not the capital each month.
Some lenders don't have a maximum age at which you can apply, making them an interesting alternative to equity release.
If you need to release a substantial sum, selling your house and moving somewhere smaller could be an option.
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.
Where can I get 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 and can arrange an equity release deal for you through a StepChange Financial Solution’s adviser.
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.
Personal advice on your mortgage options
While they are unable to advise you on equity release schemes, Which? Mortgage Advisers can explain the alternatives, which might include remortgaging to release cash, and retirement interest-only mortgages. Fill in the form below for a free callback.