How Safe Is an Equity Release?

For most, their home is the most valuable of all of their assets. Your home is an investment and a sentimental part of your life. Particularly if you have owned and lived in the same home for a long period. This is why financial decisions involving your home should always be met with caution. Instead of rushing in and failing to inform yourself properly, take some time to consider the bigger picture with all the advantages and disadvantages.

For homeowners who are concerned about just how safe equity release plans are, there is a wealth of information that should be taken into account. Firstly, an equity release plan is not like any other loan or form of credit. When you borrow money in any of these more conventional ways, you are obligated to make monthly repayments. Yes, you might get a grace period of a few months before having to make your first payment but that’s about all the wiggle room you get. If you don’t manage to pay on time, you are liable for penalties, and you might even have your assets repossessed. In an equity release plan, the funds released are calculated based on the value of your home. You are using your home to release funds that need only be repaid upon your death or relocation to a permanent care facility.

Equity release plans also allow you to choose how much of your property you wish to hand over. For example, you can release cash based on a percentage of your property value so that you will still have something to leave your beneficiaries. Some equity release plans allow you to pay the monthly interest while others require no monthly payments and compound interest is formed. There are also tax deductible options that should also be explored should they suit your needs better.

Since different financial institutions offer different plans, it is important that you seek the impartial opinion of an independent financial advisor. If your concern is safety, here are some key points to look for in an equity release plan:

1. “No negative equity guarantee” which will protect your loved ones from paying any outstanding debt.

2. The option of moving your current plan to another property without penalties.

3. The plan must comply with all relevant codes and standards.

4. You may live in your home until your eventual passing or until you relocate to a long-term care facility.

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