The pros and cons of Equity Release schemes

Sometimes life has a way of surprising us with unexpected costs, no matter how careful we are with our money. An Equity Release scheme is an effective way to free up a little extra cash to deal with emergencies, and can also help with things like paying for treats like holidays and new cars. Although it’s a relatively easy way to get a quick cash injection, it isn’t a decision that should be taken lightly. M&M Property says, “It’s important that anyone thinking about an Equity Release scheme thoroughly understands all their options and any implications to avoid issues further down the line.”

It’s a good idea to find a reputable financial adviser who can talk you through the process and help you find a solution that works for you and your finances. If you decide that Equity Release is a workable option for your situation, you’ll still need to be aware of the following points:

Although a short term solution, equity release will have a long term impact on your finances so it should never be seen as a quick fix. Any loans you take out against your property will be automatically repaid in the event of your death or sale of your home, so discuss this with any family members who may be expecting an inheritance.

Equity release loans can usually be repaid at any time but should you choose to redeem yours early, you will probably be subject to a fee. Belgravia estate agent Best Gapp advises, “Take time to read all the small print and research all your options before making a commitment.”

Some investors choose to roll up the interest on their lifetime mortgages, but it’s important to understand that this will mean the value of any related property will automatically decrease. Again it’s advisable to discuss your intentions with key family members who may be affected, so they have the opportunity to make alternative arrangements

These schemes often affect means tested benefits such as Council Tax Benefit and Pension Credits. Contact your local benefits office for advice if you’re concerned.

Equity Release Plans can often be moved around various properties, but some types of home are exempt. Be clear on your lender’s criteria before purchasing another property to make sure the scheme is transferrable.

The amount you can borrow will be affected by how much disposable income you have to play with. Seeking advice from an experienced professional will help you take a holistic look at your finance and gain a sound understanding of how any loan you take out will affect your day to day life.

Eden Harper says, “Equity Release plans are a great way to free up some extra cash to make home improvements or deal with an emergency- but as will all loans and credit arrangements it’s important to be aware of all the pros and cons and thoroughly understand what you’re committing to.”

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