Potential Downsides of Equity Release and Why It is Still Worth Trying Anyway
Equity release provides you with a rare opportunity to borrow money by tying your property to the loan, without having to worry about repayment. You are eligible for equity release only if you are at least 55 years old. You tie your property to the equity loan provider so that when you die, and they sell the property, a portion of the sale value will go to the repayment of the loan. It is basically like giving up your property to another person, without having to leave it until you die.
Even if you die and they sell the property, the loved ones you left behind will still receive something from the sale. Therefore, equity release over 55 is now becoming popular. Before you do it though, you need to consider the potential downside.
Interest charges could add up
When you borrow money now and you remain alive for the next several years, the interest charges could build up. As the amount piles up, the sale value of the property might end up going to the equity release provider, and there will be nothing for your family. The good thing is you can search equity release with a “no negative equity guarantee”. It means that even if the interest mounts, your family will not shoulder any charges that go beyond the value of the property after selling.
Your family might have a smaller inheritance
You might not have anything to leave your family after you die because you don’t own a lot of things. You only have the property for them to enjoy, or at least its value when sold. When you do equity release, whatever the amount of the property is after selling, your family will not get it in full. The equity release provider will take a part of it to repay your loan, and in some cases, the remaining amount might be quite small. Despite that, it is still worth doing.
You can instead rely on your property’s value if you need money now, rather than ask your kids to help you. Some kids also expect that they will have tons of burden to shoulder once their parents die, but in your case, you will not be leaving behind a problem. The equity release provider will not ask them to repay anything.
The value of the property might go up
When you decide to have a home reversion plan, you are technically selling the property to the provider. Whatever the value of the property in the future is, your family can’t benefit from it. The good thing is that home reversion is not the only plan you can have. If you don’t want to sell the entire property to the provider, you can decide to have a lifetime mortgage, which has different terms from a home reversion option.
It might still be confusing for you to go through all these details and compare the options. If you see the numbers, you might be even more puzzled. Therefore, you need experts in equity release to speak with you and give you advice before you decide.