Pros and Cons
Contents
Advantages and disadvantages of Equity Release
Comparative Advantages and disadvantages of Lifetime Mortgages and Home
Reversion Plans
Advantages and disadvantages of Equity Release
Advantages:
- Equity release will make a substantial amount of cash available either as lump sum or regular income.
- Products are available where no payments are required from you until your home is sold (other than the initial charges).
- You remain in your home for the rest of your life if you wish.
- Further cash can be taken by equity release later (depending on how much you take now).
- You can usually still move home (subject to certain restrictions).
Disadvantages:
- Equity release reduces the value of your estate, and the amount that will go to your beneficiaries on your death.
- Equity release products involve borrowing against or selling all or part of your home. There may be more suitable methods of raising the funds you need.
- Equity release schemes may work out more expensive in the long term than downsizing to a smaller property.
- Equity release may affect your entitlement to means-tested benefits and grants.
Comparative Advantages and disadvantages of Lifetime Mortgages and Home Reversion Plans
Comparative Advantages of a Lifetime Mortgage:
- You still own your home so all growth in the value (if any, of course) belongs to you.
- Plans can be taken out when you are as young as 55.
Comparative Disadvantages of a Lifetime Mortgage:
- The amount owed on the loan can mount up quickly.
- Interest rates may be higher than for normal mortgages due to the long-term nature of the loan.
- Further loans may not be available if you have already borrowed against a large part of the value, or if house prices were to fall.
- If for some reason you wanted to repay the loan early, there may be early repayment charges.
- If you live for a long time, or if house prices were to fall, there may be no equity left for your heirs to inherit.
- Equity release can limit your options for moving house in the later years.
This site contains generic advice on these products to help with a better understanding of their possible benefits to you. We recommend that you seek Independent Financial Advice from an authorised adviser before proceeding.
Comparative Advantages of a Home Reversion Scheme:
- Unless you have sold 100% of your home, you continue to share in any growth in value.
- Further cash advances may be possible depending on the percentage you have already sold.
- You know the proportion of the value of your home that your beneficiaries will get.
Comparative Disadvantages of a Home Reversion Scheme:
- These schemes can take longer to arrange, and some companies are selective about the properties they consider.
- If you die shortly after starting the plan, you could have sold off a part of your home cheaply. Some schemes operate a rebate if death occurs within the first few years.
- When you sell a part of your home, you do not get the full market value.