Equity release schemes have become increasingly popular for those looking to free capital from their properties; this means that the consumer has more choice than ever, and with so many providers it can be all too easy to make the wrong choice and end up with an equity release scheme with unfavourable terms. In this guide we introduce you to equity release, and talk you through the key factors you should be considering when choosing your equity release provider.
Equity release is where a person opts to release equity that is tied up within their home. This means that the person has paid off all, or a significant portion of their mortgage, and are then able to apply for a provider to, in effect, purchase, a percentage of their property. The provider then recoups this when the property is sold. The equity release scheme provides the homeowner with money as either a lump sum or as monthly payments. You should take note however that should you decide to reclaim your house ownership, you will have to pay significant interest to the equity release scheme provider. Usually, the annual percentage rate (APR) is around 7% which roughly means that £40,000 would cost you £74,400 in 20 years.
Equity release can depend on age, with some providers not covering those that are younger than 55. However, for those that are aged 55 and over there are more equity release options available.
The sum that's available to you will depend on both the provider and your circumstances, as well as the value of your home. Be prepared, however to only receive around a third of the value of your home. If your house has any encumbrances, then the cash released will be of an even lower amount.
You should start your search with a comparison website. Here you can search through hundreds, if not thousands, of equity release providers based upon the details you've entered. Thus you can compare best interest rates and find the best plan for you using free equity release calculator which allows you to see how much tax-free cash you can get from your home. Reputable providers offer free no-obligation quotes and advice. You should however be aware that this is only a brief overview of equity releases deals (such as basic terms and rates) and any equity release scheme should be scrutinised in detail prior to the signing of any legally binding documents.
Getting independent financial advice
It's highly advisable that before you enter into any equity release deal that you consult an independent financial advisor. They will be able to assess your situation and provide you with unbiased advice as to whether equity release is suitable to your circumstances. They may also be able to tell you about other options that may be open to you.