Pros and cons of equity release

Equity release is a big decision

Before making any long-term decisions, you should carefully consider your options and seek professional financial and legal advice.

What are the pros and cons of equity release?

Equity release can be beneficial later in life, but it’s important to be aware of the risks. Before making a decision, take your time and weigh your choices.

Lifetime mortgages and home reversion plans are the two options. They vary in functionality, so do your homework to find out which one is right for you or contact us to discuss your options further if you need help.

What are the advantages of equity release?

The FCA regulates equity release mortgages. It is a secure way to access some of the equity in your home. This tax-free money can be received in one lump sum or instalments, and it can be spent however you like.

You’ll have tax-free cash to spend however you like

You won’t have to pay tax on the money you release. Some of the top reasons people release equity are:

  • To pay off their mortgage or debts
  • To make improvements to their home
  • To top up their income and live more comfortably
  • To help their family for any reason such as a deposit for a property
  • To pay for something for themselves, like a holiday.

You get to stay in your own home

Downsizing, where you sell your current home and move into a smaller, less expensive one, and use the difference as you wish, is an example of equity release.

There’s no need to relocate with equity release Some people want to put some of the money they’ve freed up into home improvements. This could encourage them to enjoy their retirement without worrying about home repairs or modifications as they get older.

Staying in your home not only allows you to retire in the home you love, but it also eliminates the hassle and cost associated with moving.

You won’t have to make any monthly repayments unless you want to

You won’t have to pay back the loan or the interest until your home is sold, you both pass away or you both move into residential care permanently.

This ensures that your monthly expenses will not increase, which will help you organise your finances. On the other hand, some people prefer the option of paying off the interest to keep their debt low. You can choose a Retirement interest-only mortgage or lifetime mortgage if you think this is the best option for you.

You’ll never owe more than the value of your home

Members of the Equity Release Council recommend lifetime mortgages with a ‘no negative equity guarantee. Mortgage Saving Experts are members of the Equity release Council.

This means that the balance of your Equity Release Plan will never increase so you owe more than the value of your home.

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You’ll have access to low-interest rates

Equity release interest rates are at the lowest they have ever been.

You can access the money when you need it

You can take out a lump sum loan or a drawdown lifetime mortgage, which allows you to access smaller sums of money over time. Up to the cap set by your plan provider which you will know about before you apply for the mortgage. You won’t be charged interest until you drawdown the money.

You could avoid paying inheritance tax

You can send your family a cash gift while avoiding inheritance tax by using equity release.

Since inheritance tax rules can be complicated, seek professional tax advice before gifting any money.

Want to know more?

For more details, call our Mortgage Saving Experts today.

What are the drawbacks of equity release?

Equity release, like many other products, has disadvantages. It is, for example, a loan secured against the value of your home, which ensures it must be repaid when you die or enter long-term care. It will reduce the amount of inheritance you will leave to your loved ones. Other things to think about are mentioned below.

Your debt is increased by compounding interest

Compound interest is a factor. When interest is applied to the loan amount this is referred to as compounding interest therefore if you do not make any payments or payments which are less than the interest accrued every month your balance will increase over time.

Since a lifetime mortgage does not have to be repaid before you die or enter long-term care, the sum owing will accumulate over time.

Your benefits might be affected

Unlocking cash from your home would lower the value of your house and keeping any unspent funds could impact your current and future eligibility for means-tested state benefits, including pension credit, investment credit, and even council tax gain.

Even if you aren’t eligible for these benefits right now, consider if you may need them in the future. Our trained experts will be able to help you with more information on this.

You might be subjected to early Repayment Charges

A lifetime mortgage is a promise that lasts a lifetime. You will have to pay an Early Repayment charge if you wish to pay it off early. Often double-check any potential fees.

You can’t leave your home as an inheritance

When you die or move into long term care, lifetime mortgages require the property to be sold first to repay the scheme provider. Only any remaining funds will be given to your estate to be left as an inheritance.

You have to pay set up fees

You must pay for legal advice as well as contract fees. Each solicitor and product the lenders give you will vary in price so this will be highlighted to you when you discuss this with our advisers.

You won’t be able to take out another loan against your house

Once you’ve taken out equity release, you won’t be able to take out any more loans using your home as collateral. Some providers can allow you to take more equity later if there is still equity in the property.

What are the alternatives to equity release?

There are a few options that you may want to think about. It would help if you talked to one of our advisers about which of these choices is better for your specific situation.


One option is to consider downsizing. You would be able to benefit from selling your current home you can move to a smaller home.

You can then put the money to whatever use you want. To pay off loans, assist a younger family member, or make home improvements, for example. This option may incur some costs (moving fees may be expensive), but it will have no impact on your tax situation but could affect your eligibility to get state benefits.

Moving into a smaller home could help you save money in the long run by lowering your energy bills, for example.

You’ll be able to leave your new home to your relatives as an inheritance after you move into care or die if you downsize.

Retirement Interest Only Mortgages

In retirement, an interest-only mortgage provides you with a lump sum payment. You would then pay interest on this initial amount every month.

You will be required to provide information about your retirement income when you apply. This is required to demonstrate that you can afford the monthly payment.

Want to talk to somebody about Equity Release?

Our in-depth articles would be able to assist you if you’re wondering if equity release is secure or how much equity you should release.

There’s a lot to think about, so it’s crucial to seek professional help. Speak with one of our professional advisers, to help you determine if it’s the best choice for you.

If you’d like to chat with one of our advisers about equity release, call us on 01273 738 072 today.


Does equity release affect benefits?

Yes. If you release equity from your home, your tax position and entitlement to state benefits such as pension credit will be impacted. As a result, you may owe more tax in the future. Speak to a specialist adviser for more information and a personalised illustration of how equity release may affect your financial position.

How does equity release work?

Over 55s who want to utilise the equity in their home to enjoy retirement or create an adequate retirement income to cover future care needs will find equity release plans appealing. This service differs from other types of mortgages/debt in that you are not required to return your debt until you die or sell your house. As a homeowner, you have two choices: borrow a large sum of money or receive a monthly income in exchange for a portion of your home. The borrowed money is worth less than the market value of your home, and interest is charged on the amount borrowed. Interest rates are typically substantially higher than with a traditional mortgage.

How much can I get?

The amount you receive is determined by the rules and terms of your equity release product and contract, the value of your home, as well as your personal circumstances and lifestyle considerations such as age and health. Although you will never receive the entire value of your house, an adviser can assist you in estimating what you might receive under various options. The good news is that you have complete discretion over how you spend the money. You have the option of spending money on house upgrades, long-term care, or just a pension fund for stability. The Financial Conduct Authority, a consumer protection service, approves and regulates all products.

Is equity release safe?

The Financial Conduct Authority (FCA) is in charge of approving and regulating equity release (FCA). They ensure that your supplier is acting ethically and that the characteristics of your insurance are satisfactory. The FCA requires all firms selling or supplying a guide to equity release to be members. In addition to the aforementioned options, you can contact our Equity Advisory team. They can give you further information on which equity release businesses you should avoid.

Is equity release a bad idea?

Because there are so many variables at play, you must carefully analyse the policies and dangers. Take your time to shop around, and never sign a contract without first speaking with an adviser about the benefits and drawbacks. There are a number of trustworthy companies to select from, and prospective clients should study evaluations from former customers before signing anything. Make sure you read all of the fine print in the policy documents as well. To avoid future conflicts, it’s also a good idea to talk about the concept with loved ones and get their feedback. This is due to the fact that your choices might influence how much of your wealth they receive.

Are there alternative types of equity release products?

Lifetime mortgages are the most common sort of equity release instrument. By going here, you may learn more about how a mortgage works. Drawdown mortgages and the Home Reversion Plan are two more popular options.

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Want to know more?

For more details, call our Mortgage Saving Experts today.

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