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Pros and cons of equity release

Equity release can turn your home into a source of retirement income if you're aged 55 and over, but there are pros and cons of releasing equity. It's important to understand the positives and the downsides, so you can make an informed decision on whether to proceed.

We've outlined the main advantages and disadvantages of lifetime mortgages (a type of equity release) to help you decide whether this option could be right for you.

Pros of equity release

You’ll have tax-free cash to spend

A lifetime mortgage allows you to release equity from your home in the form of a cash lump sum or a series of flexible payments while retaining full ownership.

You can use the money you release to pay off your debts, supplement your retirement income, give financial support to your family, make home improvements and much more.

You’ll never owe more than the value of your home

Lifetime mortgages provided by members of the Equity Release Council come with a No Negative Equity guarantee. This ensures that you never owe more than what your home is worth. It also means that, if your home is sold when you pass away or move into long term care, no debt will be transferred to your family.

You can stay in your home

There’s no need to move house with equity release. You still get to retire in the house you love and can even focus on fixing it up or making improvements to it.

You don’t have to make any monthly repayments

You don’t have to make any repayments until you die or enter long term care, but there are options to make payments against the interest and the loan. You can even choose to pay off the full loan early.

You still own your home

Unlike a home reversion plan, where you sell a portion of your home up-front, with a lifetime mortgage you retain ownership and can fully benefit from future increases in the value of your property.

You can avoid paying inheritance tax

Equity release can reduce the value of your estate, which can be useful in reducing your Inheritance Tax liability.

Cons of equity release

Your debt will increase due to interest

The interest on a lifetime mortgage can 'roll-up' due to compound interest.

Example: With an interest rate of 5% compounded annually on a £80,000 lump sum, this would add interest costs of £50,312 over ten years. This means the total amount owed after ten years will be £130,312.

You might have to pay early exit fees

If you choose to repay all or part of the loan early there may be an Early Repayment Charge

It can affect your benefits

The money you release from your home with a lifetime mortgage can affect your entitlement to means-tested state benefits

You can’t take another loan against your house

No other loans can be taken out against your house once you’ve taken out equity release. Some providers may allow you to take more equity later if there is remaining equity in the property.

There are fees to pay

Lifetime mortgages typically come with advice fees, lender fees and solicitor fees.

According to Money Saving Expert the charges for taking out equity release can total between £1,500 and £3,000.^

An adviser will help you understand all the charges associated with any product they recommend. Find out more about the costs of equity release

^As at 06 December 2023

To take out equity release you'll need to speak with a qualified equity release adviser. They'll talk you through your options, listen to any concerns you may have about releasing equity, and will help you to find the right solution for your circumstances.

Have an initial, no obligation chat with one of our friendly, specialist advisers for free.

If you decide to go ahead, OneFamily Advice charge a single advice fee of £950 on completion - no matter the size of your loan.

Have a free chat today

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Important: The loan amounts above are an illustration of the amount you could borrow. The actual amount may vary depending on your individual circumstances. The figures are not guaranteed and do not constitute an offer to lend. The loan amount will need to pay off any existing mortgage secured against the same property.

We're members of the Equity Release Council

All our advisers are members of the Equity Release Council and following strict guidelines, so you will be in safe hands. We will never suggest equity release, unless it’s right for you.

To find out more, please visit their website at www.equityreleasecouncil.com