The choice of whether or not to release equity from your home ultimately rests with you. However, as the decision is likely to have wide reaching consequences for your family, it is sensible to see a financial adviser who will explain the ramifications.
There are two main forms of equity release – lifetime mortgages and home reversion plans.
Most commonly, people choose lifetime mortgage schemes. These mean that you take out a mortgage secured against your house which lets you release some of the wealth tied up in it.
Home reversion plans mean you sell a portion or all of your house at less than market value, in return for a tax-free lump sum.
If you are married or in a civil partnership, you can take out a policy with your partner. In the event of one of you dying or going into residential care, the other can stay in the home under the terms of the policy.
Your spouse aside, equity release can affect your children and other relatives in a variety of ways.
In the short term, equity release could help your family, provided you spend the money on them. For example, parents and grandparents are sometimes releasing equity on their home so they can lend it to their children or grandchildren, helping them get on the property ladder. This is sometimes referred to as a ‘living inheritance’.
This said, it will diminish the value of your home, which your children might see as part of their inheritance. Because of regulatory requirements, all equity release products have a ‘no negative equity’ guarantee, as long as they are sold by a member of the Equity Release Council. As a result, you will never owe a lender more than the value of your house.
Some equity release products could lead to you repaying a huge amount, leaving your children with a far smaller inheritance than they may have expected. With some plans it is possible to protect an element of equity as an inheritance plan. Otherwise, you could decide on an interest payment plan, preventing the loan from building up.
It is best to keep your children in the loop if you decide to release equity. This will avoid any sudden shocks down the line and give them a chance to understand the process. In addition, you should seek advice to make sure you take out an equity release plan that is right for you and your family.
19 December 2018
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