The main disadvantage of freeing up equity is that it doesn’t pay you the full market value of your home. You will receive much less money than you would from selling the property on the open market, although, of course, in that situation, you would still have to find somewhere else to live. Releasing equity can provide a useful way for older homeowners to access the equity accumulated on their property. It won’t be right for everyone, but under the right circumstances, the capital release could be used to supplement your pension income or provide a lump sum, all while you live in your home.
Releasing capital may be a good idea for seniors who want to earn some extra money during retirement. Releasing capital can help you make improvements to your home, pay for care costs, help a loved one who is struggling financially, or pay other debts. To be eligible for equity release, you must be at least 55 years old, own your own home, and have sufficient equity in your property, which is the difference between the value of your property and any outstanding loans or mortgages you may have insured against it. While freeing up capital can significantly benefit your quality of life, it’s important to understand the potential drawbacks.
It may be the case that there is an alternative to equity release that best suits you, such as remortgaging or reducing the size of a smaller property. As stated above, the risks associated with the release of capital depend on the type of capital release you are interested in. The release of capital is a process that allows you to “free up” some of the capital you have accumulated in your home. A capital release mortgage has no monthly payments and allows you to access your home’s tax-free cash without having to move.
Equity release mortgages are becoming more popular as people look for ways to increase their income or provide a lump sum of cash to make life more enjoyable, but whether it’s a good idea or a bad idea for you will depend on your own personal situation. Lifetime mortgages granted by Equity Release Council members offer a “non-negative equity guarantee”. In addition, to meet your loan obligation, the property must be sold, you cannot simply leave it to your heirs once you have signed a capital release agreement. The problem with releasing capital is that interest is aggravated, so it grows much faster compared to a residential mortgage.
Whether releasing capital is a good or bad idea depends on your personal circumstances and the reasons for releasing cash from your home. You don’t need to have a mortgage-free property, as any existing mortgage or loan can be repaid with the money you release. Releasing capital might be a good idea if you’re 55 or older and want extra money for retirement, home or garden improvements, or perhaps to help the family financially. You can use the capital release to give your children or grandchildren an early inheritance, or “living inheritance”.