Equity Release Pros & Cons

Stop Debt Collectors Equity Release Pros & Cons

Is Equity Release a Con?

As you enter into your twilight years, you might find yourself needing additional sources of income to cater to your daily expenses or long-term care needs. One way of getting this money is through an equity release. Equity release allows you to get a boatload of cash without paying any monthly payments.

If you are the cautious type, you will likely wonder whether equity release is a con. Well, equity release can help UK seniors in many situations, but it’s not a good fit for everyone.

Stick with DoNotPay to learn more.

What Is Equity Release?

In this context, equity refers to the market value of your home after deducting the unpaid mortgage. It is simply the money you would get after selling your home. On the other hand, the term “equity release” refers to an arrangement where you get a large sum of this money while still living in your home.

You then repay the loan in one complete payment when the house is possessed upon your demise or when you move into long-term care.

How Does Equity Release Work?

The equity release provider will offer you a lump sum or a periodic income to own a part of the value of your home. The most common types of equity release are:

  • Lifetime mortgage
  • Home reversion

Check out the table below for more details.

Lifetime Mortgage

Under this type of equity release, the borrower gets a lump sum in the form of a mortgage. The amount is usually repaid through the sale of your house when you die or move into long-term care.

You can only borrow between 18% and 50% of your home's value. The amount payable will grow in interest as time passes and could compound to a considerably greater value than the amount you borrowed.

However, some providers guarantee that the amount payable will not be greater than the amount that would be recouped from the sale of your property. Still, this does not eliminate the chance that the entire amount from the sale of your home could be used to repay the debt.

Home Reversion

This equity release scheme entails selling a part of your property or its entirety, but you have the legal right to live in it until you die or are taken into long-term care.

The money can be released in regular batches or as a lump sum.

You won't receive a full market value for your property for home reversion, whether you sell it wholly or partially. You are only entitled to a maximum of 60% on the market value, which could even be as little as 30%. This is one reason why some people feel equity release is a con.

Who Is Eligible for an Equity Release?

These schemes usually target older folks. The older you are, the more you can get out of the scheme. Seniors with complications and poor health also get more money than those likely to enjoy a longer, healthy life.

Why Is Equity Release Sometimes Seen as a Con?

Equity release schemes are not scams, but some people refer to them as so because of how expensive they are to repay. Since the interest on the debt compounds, you may remain in debt after the house is sold. However, the interest rates applicable to equity release schemes are more or less similar to those charged on personal and credit card loans.

But the fact that the interest builds up for a longer time can make them expensive to pay.

How Can I Reduce the Risks of an Equity Release?

An equity release can be avoided by planning for retirement earlier by taking a private pension or an annuity.

However, if you find yourself in a situation such as where:

  1. Your savings or income will not sustain your retirement
  2. You are not in a position to downsize
  3. You have no beneficiaries or don't mind reducing their inheritance

Then equity release is not such a bad idea. However, it is best to take some precautions.

Here is how to go about it:

  1. Ask a financial advisor to explain the possible long-term risks and whether viable alternatives exist.
  2. Pay the interest at regular intervals to avoid it compounding over time.
  3. Take out a series of smaller lifetime mortgages to avoid paying interest on the whole sum, ensuring you owe a smaller amount.

Am I at Risk of Losing My Home by Taking an Equity Release?

No. The Equity Release Council ensures that you line in your home until you die or move into long-term care. You also cannot owe more than the value of your home, even when its value drops.

However, should you find yourself getting harassed out of your home for taking equity relief, sign up with DoNotPay, and we will look at the case and intervene on your behalf.

Get Debt Help with DoNotPay

If you need help with an equity release or other debt issue. Get in touch with us using these three easy steps.

  1. Search "debt collection" on DoNotPay.

     

  2. Answer a series of questions about the debt collectors, including when you were contacted and how you were contacted, so we can determine if they have violated any debt collection laws.

     

  3. Decide which course of action you want to take based on our guidance, such as filing a debt verification request, demanding for the collectors to stop contacting you, or reporting them to a professional trade association.

     

DoNotPay Works for All Debt Collectors

We can help with harassment or violations resulting from debts owed to the following creditors or debt collectors, and others.

What Else Can DoNotPay Do?

Intervening on your behalf when experiencing debt problems is one of the many things we do in addition to the following:

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