Are you retiring? Are you worried that you will have no cash when you retire? Preparing for retirement and anticipating this period of life from the beginning of one's professional career has become indispensable. For some, this can be difficult to understand and especially difficult to implement. One of the best ways to prepare your old age is by releasing equity. Equity release is a procedure that lets you access the monetary value that is tied up to your home if you are above the age of 55. It allows you to take the money that you release from your equity in installments, or as a lump sum, or as a combination of both of them. Considering the needs and choices of homeowners, several equity release schemes are being made available all over the UK. There are already more than 139 equity release schemes in practice. If you are planning to release your equity, it is necessary to get some professional financial advice. Responsibility Equity Release provides responsible advice and offers best equity release rates in the UK. If you want to take advantage of the value accumulated in your home, you can consider equity release. However, for people who want to leave the value of their property as a legacy, this might not be a good idea since your debt can accumulate to the point of almost equaling the value of your home. To explain to you better about the equity release, we have listed the Pros and Cons of equity release for you.
1. No need for relocation
There is no other better option than equity release for older people that lets them access the funds from their property without having to downsize or sell it. It lets you keep your house and the large amount that comes with it. It takes the form of a loan of up to 50% of the value of the property. It does not require a refund and is tax-free, but upon death, the bank will recover the principal loaned and the payments that should have been paid up to the proceeds of the sale of the last survivor's property. If a couple joins this program and one of the spouses dies, the survivor can continue to live on the property and enjoy the same benefits.
2. No need for monthly payments
Life after retirement can be more stressful if you have a mortgage for which you have to pay monthly. It becomes horrible when you have a limited pension as the only source of income and a mortgage not fully paid yet. Equity release is an ideal choice if you wish to have a mortgage secured on your property without having you to make monthly repayments. Such mortgages have no term and are eventually paid upon the sale of the property. Moreover, the ownership will still be yours.
3. Low rates
The interest rate on the mortgage provided on equity release can be very low and are usually fixed for the life of the loan. Since the interest rate is fixed, as a borrower you know how much you will owe in the future. As such, the percentage of the property's value you decide to borrow will have a significant impact on the rates.
4. Guarantee of No-Negative Equity
Are you worried that the value of your property might decrease over time and you may have to pay for it? Don't worry. Equity release comes with a no negative equity guarantee which means that even if the value of the property is decreased in the future, the borrower isn’t entitled to that risk. The risk has to absorbed by the lender.
Equity release comes with several options. There are several ways to access funds. You can decide the type of installment you want to receive the money in or decide to access the pot full of money. You will not be charged with the interest on the money you didn't use.
1. Doubling debt
Equity release has compounding interest which means the amount you owe can rise quickly. The interest in equity release is added to the overall debt every month. And the interest is then charged on the new overall debt. Since the amount of debt keeps rolling up, it grows rapidly.
2. Entry without Exit
It is one-way traffic. The penalty for early repayment is very high on such mortgages which makes it difficult for the owner to switch to a new, cheaper deal. You may end up being the prisoner of your current provider since on escape you might lose a huge amount of money. Therefore, it is necessary to make yourself familiar with the terms and conditions of the lender.
3. No other loans
Once you take a mortgage as an equity release, you cannot take any other loan using the same property. So, it might leave you handicapped if you want to add more funds using the same property.
Equity release can the biggest decision of your life after retirement which is why it is better to know your choices beforehand.