The choice of whether or not to release equity from your home ultimately rests with you. However, the decision will have wide reaching consequences for your family. It’s sensible, before releasing equity, 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’re 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. Parents and grandparents are sometimes releasing equity on their home some 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. Equity release products obtained through a provider who is a member of the Equity Release Council, however, will contain a ‘no negative equity’ guarantee. As a result, the total debt owed will not exceed the value of your home and will be cleared from the eventual sale of the property.
Some equity release products could lead you to repaying a huge amount, leaving your children with a far smaller inheritance than they may have expected. With some plans it’s 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’s 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 consult an expert to make sure you take out an equity release plan that’s right for you and your family.
There are a lot of ways you can use equity release, take a look at our three here.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article).
Reference – BL052 – Jan – 19