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equity release

An equity release scheme can often be a good and sensible option for people over the age of 55 looking to release cash from their property, especially for retirement. There are many pros and cons to entering into an equity release scheme however, so it is important to seek advice where necessary and think carefully about your decision before you commit to anything. You could end up only owning part or even none of your home, with the provider selling your home and keeping the profit after your death or after you go into a care home. This means that your family are unlikely to inherit any money from your home, so you could also consider a quick cash sale to release cash from your home and downsize as opposed to entering into an equity release scheme but the choice is yours.

If you have already taken out an equity release on your home, you do have the option to buy back any part of your home that has been bought by the provider at any time should you wish to do so. If you choose to do this, it is a good idea to get advice as it can be more complicated than you think. You will need to pay off any interest as well as what you owe, plus there are often repayment charges for paying it off early which can amount to as much as 25%. Also ensure that you choose an equity release provider who is part of the Equity Release Council as they have a negative equity guarantee protecting your family from any deficit after your death should the value of your home fall below the amount outstanding.

Finding a reputable equity release provider who is trustworthy can also be hard work as there are many that try and scam people so it is important to be extremely careful when entering into any of these schemes. Firstly make sure they are registered with the Equity Release Council, as they have an obligation as part of the Council to treat customers fairly and honestly. It can also be quite costly to enter into an equity release scheme with application fees alone costing anything from £500 upwards. Valuation fees also vary depending on what your home is worth, so be sure to shop around and check prices before committing to anything. Interest rates on the amount you take are around 5% but some may be higher meaning that your debt can easily double after just ten years.

There is also certain criteria that you have to meet in order to qualify for equity release. You have to be over 55 for any kind of lifetime mortgage option or over 65 for a home reversion scheme and of course you have to be the homeowner of the property, so you can’t do it on behalf of a family member for example. You may be turned down if you have an outstanding mortgage on the property, but some companies will offer equity release if the amount outstanding is quite small.

Equity release can also reduce the amount of inheritance tax liable to family members but other factors need to be taken into consideration so whatever you decide to do it is important to seek professional help and advice.

by Cormac Henderson

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