The question of why to choose equity release has likely been on the minds of many UK homeowners over the age of 55.

As this financial tool gains momentum, it is crucial to understand its nuances, benefits, and potential drawbacks. 

Delve into our detailed guide as we demystify equity release, offering expert insights and trusted advice, ensuring you are well-informed every step of the way.

Whether you are exploring the reasons behind its popularity, the various plans available, or seeking potential alternatives, we have got you covered.

Let us dive in and learn more…

What Are Equity Release Products?

In the context of personal finance, equity release products refer to the process of converting home equity into usable cash, enhancing financial flexibility.

What Are the Top 5 Reasons to Choose Equity Release?

The main motivations include mortgage settlement, gifting, debt consolidation, bill management, and home improvements

Let us take a closer look.

Settle Your Current Mortgage Debt

When settling an existing mortgage, it means making use of the funds to pay off the outstanding balance of an existing home loan. 

By doing so, you can enjoy the benefits of being debt-free without worrying about your mortgage. 

Taking this step can be especially helpful for those who are getting close to retirement, as it can guarantee a debt-free entry into your golden years.

Family Member Gifts

Family member gifts are the act of providing financial support to loved ones or bestowing monetary presents upon them for a variety of reasons, including milestones, events, or simply out of generosity.

What is more

Relatives can receive assistance with significant expenses, such as down payments on homes, weddings, or educational pursuits, with the help of these gifts. 

Individuals can offer immediate relief to members of their families by providing such financial assistance, and they also have the potential to shape the members' futures in meaningful ways. 

Resolve Outstanding Debts

Resolving outstanding debts means getting rid of all outstanding financial obligations, like loans, credit cards, and other debts.  

Dealing with and paying off these debts can help people improve their credit scores,¹ ease their financial stress, and set them up for a better financial future. 

Taking decisive action to pay off debts is the best way to start fresh financially and enjoy more serenity.

Assist with Routine Bills

Assisting with routine bills entails utilising funds to manage recurring and recurrent expenses such as utilities, groceries, and monthly subscriptions. 

Having a reliable source of income to cover basic living expenses allows people to avoid falling into financial hardship. 

By ensuring that routine bills are paid on time, late fees, service interruptions, and the accumulation of debts can be avoided.

Enhance Your Home

Enhancing your home entails making renovations, improvements, or modifications to improve its appearance, functionality, or overall worth. 

There are different ways to improve the home, such as:

• Adding square footage 
• Sprucing up the interior 
• Making it more energy efficient

This is a great way to both raise the quality of life there and the value of the home. 

Improvements like these make homes more desirable places to live and can pay off in the long run through increased resale value or the ability to borrow against the property's equity.

What Are the Advantages of Releasing Equity?

The advantages of equity release products become readily apparent when property-based financial tools are taken into consideration. 

The advantages include the following:

• Quick Access to Funds: Get a lump sum or regular payments based on the value of your home.
• Financial flexibility: An equity release can cover large expenses or supplement retirement income.
• Monthly Payments: Most of the time, especially with lifetime mortgages, you do not have to make monthly payments.
• Stay in Your Home: You can access money while still living in your home.
• No Negative Equity Guarantee: Many plans ensure you will not owe more than home value. ERC members provide this guarantee by default.
• Tax-Free Cash: The money that is released is usually not taxed, but investments that are made later may be taxed.
• Customisable Plans: Opt for only a lump sum or add a facility from which to withdraw when you wish.

Learn More: What are Lifetime Mortgages?

Equity Release Pitfalls

The disadvantages should be considered when researching property-based financing options. 

• Interest Buildup: Lifetime mortgages can run up large amounts of interest.
• Inheritance Might Be Less: If you pay back the loan, the amount you can leave as an inheritance may be less.
• Possible Fees: Some plans may come with early repayment or setup fees. 
• Effects on Means-Tested Benefits: Releasing equity can change who is eligible for some means-tested state benefits.
• Property Value Changes: A property's value drop could affect future planning equity.
• Limited Mobility: The agreement may complicate home moves and downsizing.
• Long-Term Commitment: Releasing equity is a long-term deal, and it is important to know what it means in the long term.

Common Questions

Conclusion

Equity release stands as a compelling option for homeowners aiming to maximise their property's value in their financial planning. 

However, just like any other financial tool, it is important to learn how to use it properly. 

When deciding why to choose equity release, it is always recommended to seek advice from a financial adviser.