Equity Release - What You Need to Know

Know Your Customer

It's important that your Lifetime Mortgage Adviser is extremely thorough in understanding your situation and what you are trying to do. Understanding why and when you need the money will allow your adviser to work out how much you need now and how much you may need in the future. It's best to only borrow what you need now and have the facility of drawdown for the future.

Explain the Risks

It's important to understand the risks of Equity Release.

• Compound Interest - If you don't make any payments once your mortgage is set up, then you will be suffering from Compound Interest. It's important to understand what effect Compound Interest will have on how your mortgage debt increases over time. You must also understand that most Lifetime Mortgages these days do allow you to avoid Compound Interest by allowing you to make optional payments. 
• Early Repayment Charges - These differ massively between products. Some work on a fixed percentage whilst others can vary based on certain situations. This can work for you, but you also have to understand how it can work against you. Having said all that, generally there are situations where Early Repayment Charges will be waived completely and so for some people Early Repayment Charges would not be an issue. The key thing though is that you understand.

Understand the Alternatives Available

• Downsizing - Buying a less expensive property could mean you don't need to borrow any money and might also means that your ongoing outgoings could be less.
• Short Term Finance - If you only need a small amount of money, then taking out a short term loan could be something to consider. Although the interest rate may be higher, because you would be paying over a shorter period of time it should cost you less. This would of course be subject to affordability.
• Benefits & Grants - For some home improvements or funding for domestic care you could be eligible for assistance from your local council. It's also very important that you and your adviser understand the implications of releasing a large amount of money, to make sure that grants and benefits aren't affected.
• Other Assets - Do you have other Investments or Assets that could give you a lump sum, or provide you with additional income?
• Rent a Room  - Can you rent out a room in your home? You can earn up to £7500 per year tax free, under the Government's 'Rent a Room' scheme. Please bear in mind though any possible implications on means tested benefits. 
• Family & Friends  - Are there any family or friends that may be able to help you out financially?