Do's and Don'ts
Do consider all the alternative solutions available.
The decision to release equity from your home is a significant one. Like all borrowing decisions it must not be taken lightly. Assessing all your other options may either eliminate your need to borrow or reduce your actual borrowing requirements.
The most common alternatives considered are:
- Downsizing
- Borrowing from family or friends
- Use of existing savings / investments
- Unclaimed benefit entitlement
- Home improvement grants.
Don’t borrow more than you actually need.
Make a detailed list of your immediate spending plans, you do not want to be paying interest on any money you don’t actually need.
If you are likely to need more money in the future, new flexible drawdown plans can provide access to additional funds as required. This means interest is only charged on monies you have actually borrowed. Borrowing money gradually can be far more cost effective than taking a single initial lump sum.
Do involve either family members or a trusted friend.
Although you are under no obligation to do so, we would strongly recommend that you discuss your plans with family. If you decide not to seek their involvement, you may wish to inform them that any future inheritance will either be reduced or eliminated.
If you do not involve family members then we would suggest discussing your plans with a trusted friend. It is also good practice to inform the executors of your estate, as they may have to liase with the lender when the loan is due to be repaid.
Don’t select a plan primarily on interest rate.
Whilst obtaining a competitive interest rate is important, you must also consider how the plan will meet your future needs. Below are some of the questions that need to be answered when choosing a plan.
- Can the plan be repaid early – Are there any early repayment charges?
- Can you borrow additional funds in the future – What costs are involved?
- Can the plan be moved to another property?
- Who will retain ownership of the property?
- Is the plan FSA regulated and SHIP approved?
Any plan you choose must not only meet your immediate requirements but must be flexible enough to adapt to any life changes in the future.
Do obtain independent legal advice.
All SHIP approved lenders require you to seek independent legal advice. Ensure your chosen solicitor has equity release experience and ideally agree a fixed legal fee before proceeding.
Don’t proceed without specialist advice.
Seek advice from a qualified and experienced adviser who has access to all the plans and plan providers in the market. This will ensure that all available options have been considered prior to any recommendation.
Be aware that direct sales teams usually offer tied advice; this means they can only source a solution from a limited range of products or providers.
Do consider the impact any borrowing may have on your entitlement to means tested benefits.
Holding additional funds on deposit may impede upon your eligibility for benefits now or in the future. Your adviser should undertake a full benefits assessment to ensure you are already in receipt of the maximum amount available and to also establish what impact any borrowing may have on your current and future entitlement.
Don’t borrow money to invest.
We strongly advise against releasing funds to invest. It is unlikely that any investment would provide a return greater than the costs associated with any borrowing. New plans now provide the option to create a monthly income without the risks associated with investments.
This arrangement may involve either a lifetime mortgage or home reversion plan. To understand the features and risks ask for a personalised illustration.