Equity Release Pros & Cons

Discover the Pros & Cons of Equity Release

Is equity release for you? This popular financial instrument comes with many advantages and disadvantages, but don’t let the latter put you off. Is it for you, though?


Equity release could help you sometime down the road; however, it’s critical to comprehend the expected downsides. It’s essential to take time to think about your alternatives before settling on a choice.

There are two principal plans available – lifetime house loans and house reversion plans. They have various elements, so make sure to explore which one is best for you.

7 Advantages to Equity Release

Equity release strategies controlled by the FCA are a protected method to get access to any equity tied up in your home.

You can take this tax-exempt money as a single amount or in portions and use it as needed. Admit it; you can’t get much better than this.

#1. Tax-Free and Fancy-Free

You’ll have tax-exempt money to spend any way you like, and you won’t need to pay a charge on the amount that you release.

Individuals release equity for various reasons.1

It can be to take care of a home loan or obligations, make enhancements to the house, increase income, and live more stress-free, support family, and pay for something such as a vacation. Wouldn’t it be great to take care of any of these things effortlessly?

#2. A Fulfilling Retirement in the Home You Love

You’ll be able to remain in your own home.

You can view equity release as another option to cut back. An example of this could be where you sell your house to relocate to a more affordable one and use the difference as you feel appropriate.

There’s also no compelling reason to move.

Particular individuals choose to use a portion of the cash they release to make upgrades to their house.

Suppose they use a portion of the cash for this.

In that case, it could permit them to make the most of their retirement without agonizing over fixing things around the house or causing adjustments as they age.

It’s safe to say that everyone dreams of retiring in the house you love, which means you won’t have to face the pressure and cost that moving involves.

#3. Debt On the Low and Smiles on the Rise

You won’t need to make any month-to-month reimbursements except if you need to.

There will be no need for reimbursement until you sell your house when you pass away or if you make a move to residential care. It implies that your month-to-month expenses won’t go up, which will help when doing the books.

Some individuals prefer the option to take care of the interest to keep the debt at a low. If this sounds like you, you can tick the interest-only lifetime mortgage box.2

#4. No Caught-Out or Unexpected Fees

You’ll never have to pay more than what your house value is.

You can view this as a ‘no negative equity guarantee.’

Are you wondering what this means? It means that no one will move your outstanding money into your family’s hands once you sell your house when you pass or change to long-term care.

#5. A Dip Into the Low-Interest Rate Pool

Having access to low-interest rates is another benefit, and you’ll be happy to know that these have dipped down to the lowest they’ve been in five years.

#6. Permanent Cash in Your Backpocket

The next advantage is that the money is there for you when you require it. Wouldn’t it be great if this was the case for you?

You can set your mind to the lump sum option or the drawdown lifetime mortgage, which will give you access to small amounts of money over some time.

It means that you’ll receive a regular income with the limit set by your plan provider. You also won’t have to pay interest until you decide to have access to it.

#7. Avoid Inheritance Tax and Make Your Family Happy

Paying inheritance tax could be avoided, so you can spoil your family with a cash gift without having to worry about tax eating it up. Just imagine that!

When it comes to inheritance tax, the rules can be quite complicated, so to save your skin, seek the advice of an expert.3

6 Disadvantages to Equity Release

As with anything that comes with advantages, there are disadvantages too.

Since it’s a loan secured against your house value, there will be a repayment of any outstanding money when you pass or move into permanent care.

Equity release will also lessen the total of the inheritance you can leave behind.

#1. Debt Can Run Away From You, But You Can’t Run Away From It

Interest will result in your debt increasing due to compound interest, which is when the loan amount and current interest increases due to an amount added. Any money owed could increase at a rapid rate over the years – because of a lifetime mortgage not needing to be repaid until you pass or go into permanent care.

There is a solution to this. You can reduce your debt by injecting money into your loan at a gradual rate, with an interest-only lifetime mortgage.

#2. The Negative Effect on Current and Future Benefits

It might affect your benefits as unlocking money from your house will decrease the value of your property.

By maintaining unspent finances, you could influence your current and future qualification for means-tested state benefits.

These benefits can include pension credit, investment funds credit, or council tax benefit.

Regardless of whether you’re not qualified for these advantages currently, contemplate whether you may require them later on.

#3. A Lifelong Commitment That Can be Costly

You might face early exit fees due to a lifetime mortgage being a lifelong commitment.

If you opt for paying it off early, you might have to pay a redemption fee, which is why it’s essential to see what charges may apply.

#4. Your Home Inheritance in Someone Else’s Hands

You won’t leave your house as an inheritance because you may need to sell your home to repay the scheme provider once you pass or move out with most of the plans.

Any money that remains will go to your estate to leave as an inheritance.

#5. Extra Advice Comes With Extra Fees

Set-up fees will need to be covered as you have to pay for arrangement fees and expert advice.

#6. No More Loans Allowed

Another loan won’t be able to be taken out against your house.

Once you’ve signed for an equity release, you can’t take out any other loans using your home as security.

For any leftover equity in the property, some providers may allow you to take more equity at a later stage.

Common Questions

What Are the Advantages to Equity Release?
What Are the Disadvantages to Equity Release?
For What Can I Use Equity Release?
How Does Equity Release Work?
Is Equity Release Safe?

What to Do Next?

Aren’t you sure if equity release is safe, or do you want to see how much equity you could release? There’s a lot of advice articles if you do some research on the internet.

There’s a lot to think of and process; therefore, it is beneficial to seek expert advice. It can come from a specialist adviser, solicitor, or both.

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