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Equity Release: Think Carefully

Negative Equity: What are my options?
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It sounds like the perfect solution to an age old problem of being equity rich and cash poor in retirement – sell part or all of your home to an equity release company, have the cash to spend while you can enjoy it and the equity release company re-coup the money on the sale of your home after you have passed away. However, it may not all be quite as simple as it sounds, so if you, your family or someone you know is thinking about heading down the route this as an option, you may want to consider some of the following points before taking the plunge.

What is Equity Release?

Similar to a mortgage, equity release loans are set depending on the value of your home, but unlike a mortgage, an equity release loan doesn’t pay off interest. You are given a lump sum and then the interest on that builds up until death, at which point the original loan amount, plus the interest built up, will be taken from the proceeds of your house sale. The problem which may arise from this is that once you have passed away and you have left your home and assets to your family, if the interest has built up considerably, they may be left with little or no proceeds from the sale of your home (although lenders should ensure that your estate never has to pay more than the home’s value). You may want to consider moving house and down-sizing . That way, you can benefit from the money from the sale of your home and nothing will be taken from the value of your new home; you can rest assured 100% of it is left to your family.

Equity Release: Think carefully

If moving home isn’t something you want to consider, discuss any options with your family so they are fully aware of your plans and they may be able to offer other solutions. If equity release is something you want to look into then you might want to think about getting advice from a specialist to ensure you get the best deal. Many of the deals are only available through authorised intermediaries so shopping around yourself may end up costing your more in the long run. When looking for an advisor, check they are fully conversant in all areas such as funding for long term care and welfare benefits as these issues are often intrinsically intertwined.

Talk to an Independent Advisor

You may want to ask your financial advisor about any effects equity release may have on your pension or any benefits you’re claiming. They may be able to offer advice on limiting the amount of inheritance tax paid on your estate and give you a clear picture of all the various schemes available. Ask them about their fees and equity release set up fee’s up front so there are no nasty surprises.  The wrong advice can have a huge impact on your future so look for a specialist, not just a generic financial advisor.

It may be tempting to borrow a little or a lot extra than you actually require but as the interest cost on the loan will be significantly more than any interest made in a savings account, it will cost you more and leave less equity in your property. If you are concerned you may be left short and don’t want to start the process of releasing more money again, there are plans available where you can draw down cash as and when required. That way, you are only paying interest on the amount you have taken rather than on a large lump sum, making it a more cost effective option.

Find a good solicitor

If you opt for equity release, you will need to use a solicitor as part of the process, so check yours is familiar with this or if you don’t already have one, search for a solicitor with experience of equity release. A solicitor who hasn’t experience in this field may take longer and cost you more to draw up the paper work. Any good equity advisor should also be able to put you in touch with solicitors with specialist experience in the area.

Plan ahead for your future

Finally, you should ensure you have a clear idea of what you want in the future, if you think you may eventually move house you may be able to pay off your equity loan sooner and avoid hefty interest payments or you may want to delay getting the loan altogether and use the money from your house sale instead. The decision will be based on your own personal circumstances but try and ensure your family are made aware of your plans so that they can make arrangements for after your death and the equity release arrangement doesn’t come as a shock.

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About Rebecca Robinson

About Rebecca Robinson

After spending the last 8 years juggling life as a mum of two, wife and working full time as a Project Manager for a global telecommunications company, Rebecca Robinson made the decision to follow her love of writing and took the plunge; turning her passion into a full time career. Since becoming a full time writer, Rebecca has worked with various media and copy-writing companies and with the ability to make any topic relevant and interesting to the reader, now contributes to The Working Parent on articles ranging from credit cards to teenage relationships. Ever the optimist, Rebecca's dreams for the future include a house in the country filled with children, dogs and horses in the field!

Website: Rebecca Robinson

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