Equity release schemes have become more and more popular in the past few years. But it is also a fact that equity release schemes still ring alarm bells in the minds of many. The main concern that people have with equity release is that it can erode your estate and leave little equity for your beneficiaries.
Another alarming scenario is where the loan could become bigger than the sale value of the property resulting in ‘negative equity’, where you could potentially owe money to the equity release provider. While these were legitimate worries until some years ago, equity release schemes today involve far fewer risks.
Equity release and regulation
All equity release schemes come with a no negative equity guarantee as schemes these days are incorporated into the Equity Release Council rules & regulations check list. This protects consumers from ever owing more than the value of their house, even if the loan did surpass the current valuation. Basically, the lender will waive any excess, with the worse case scenario being no equity for the children.
Equity release today can be used as a flexible tool to optimise your financial assets to support you during retirement. The fact is that equity release offers a way for older homeowners to access the value that has built into their home, without having to sell their property and move out. Rising costs of living, rising costs of care and ever shrinking pension funds are making it difficult for many pensioners to support their lifestyle during old age.
What can equity release be spent on?
Retirement is seen as the golden period of life, when one should be free to enjoy the fruits of their lifelong labour. Whether it is for a one-off expense such as a holiday, or a home extension, a cash gift to children or grandchildren, or a regular income supplement, many people are turning to equity release as a way to access the cash in their home without having to sell and downsize.
So, are there risks involved with equity release schemes? As with any financial product, it is important to understand the full implications of releasing equity from your home. By releasing cash from the value of the property, you essentially devalue it to a certain extent, and this is bound to have implications for your beneficiaries. However, unlike equity release schemes of the yore, no matter how large your debt, your beneficiaries will never owe anything personally to the equity release lender.
There are various equity release plans designed to suit people in varying circumstances and with different needs. It is important to understand your own needs and priorities and use your financial acumen to find out which type of equity release product suits you best. An equity release calculator can help you work out the numbers with respect to different equity release plans, and consulting an equity release expert can help you understand how different plans can work for you.
The maths can add up to the solution you are looking for, but as ever it is the details you input in the first place the determine the end result. Caveat emptor as they say!