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Pros and cons of equity release

Equity release can turn your home into a source of retirement income, but it has big implications.

Is a lifetime mortgage right for you?

Lifetime mortgages, the most popular form of equity release, help you release equity in the form of a lump sum or a series of flexible payments. This equity is released in as a loan against your property, which is usually only repaid when you die or enter long term care.

Could a lifetime mortgage be right for you? What are the pros and cons?

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 this money in any way you see fit – to pay off debts, supplement your income, make improvements to your home, help out your family, the list goes on.

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 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’, which means with a rate of 4.1% compounded annually on a £100,000 lump sum would add interest costs of £55,000 over ten years

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 lender fees, solicitor fees and a fee paid to the equity release adviser who recommends the product. Charges associated with equity release can total between £2,000 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

Whether a lifetime mortgage is right for you depends on your individual circumstances. A specialist adviser can help evaluate if it is the right decision for you. OneFamily Advice offers a fixed advice fee of £950, payable on completion.


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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.

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