Equity release is a great way to release cash from your home without moving or selling it. However, like any financial product, there are risks involved, and it is devastating when you make a mistake that can cost you your equity. Fortunately, here are five of the most common mistakes people make when taking out equity releases:
Not considering all the options
Equity release is not just a single product. Instead, there are many types of equity release, each with pros and cons, meaning you need to understand your options before deciding. For example, some equity releases are less expensive but have higher interest payments. In contrast, others are more expensive but allow you to pay off the loan at any time without penalty.
What’s more, some equity releases might be better suited for one person than another—for example, if you want to move home in the future and can sell your property before it becomes over-encumbered by debt. A leasehold first legal charge may not be right for you.
Releasing equity without a financial plan
Releasing equity without a financial plan is a mistake to avoid when it comes to equity release. A financial plan is the best way to ensure that you know exactly how much money you need, what your assets are worth and how much money they’re bringing in, and how much of your income goes toward paying bills. In addition, it can be challenging to determine whether or not releasing equity is necessary without a financial plan.
A financial plan also helps you figure out how long your money will last in retirement if you have enough resources to cover your expenses and save for retirement. If there are any areas where you can cut back on spending, you have more money available for emergencies or unexpected expenses. A financial plan also helps determine if any tax-saving strategies benefit you before deciding on an investment strategy.
Not taking expert advice.
One of the most common mistakes people make when considering equity release is not consulting with an expert. However, when you’re talking about your home and its value, you must have all the information before you make a decision.
A good equity release adviser will be able to discuss all the options with you and help you decide which is best for your circumstances. They’ll also be able to advise you on what interest rate or repayment period might work best for your financial situation, as well as whether or not there are any restrictions on when and how often you can take out loans against your property.
They’ll also be able to explain the legal implications of taking out an equity release loan so that you know exactly what you’re getting into before making any decisions regarding what kind of loan will work best for your needs.
Falling for scams and misinformation
Unfortunately, you should also be wary of scams common in the equity release market. Scams can take many forms, including unsolicited emails or cold calls that falsely claim to represent a reputable company. Therefore, if you receive any unexpected communication regarding your equity release application, you should always double-check its legitimacy by searching for it online and calling the number provided on official websites (if applicable).
Misinformation is also a common issue in this industry—a fact that’s not helped by the fact that it’s so difficult to find reliable sources of information about equity-release products. One way to avoid falling victim to misinformation is by checking official sources, such as your lender’s website, before deciding what product(s) may work best for your situation.
Waiting too long to take out equity release
As you age, your home equity declines. As a result, you’ll have less money to live on, and your flexibility will be reduced. You may need to sell your home sooner than you’d like.
If you’re in your 50s or 60s and considering equity release, take your time before taking out a loan. The longer time passes between when a person takes out an equity release product and then sells their property, the less financial benefit there will be for them – as their home value decreases with age, less equity is released from their property. Fortunately you can turn to a service similar to Equity Release Council that helps you deal with equity release.
Taking out equity release is only for some. It’s important to consider all options and how to use this money wisely to secure your future. Equity release should be seen as one option in your overall financial planning, not a silver bullet solution that will solve every problem at once. So remember to talk to an expert before deciding.