Seven tips to maximize your equity release payout

Oct 16 | 4 minutes read
Seven tips to maximize your equity release payout

Due to past mis-selling practices during the product's infancy and lack of oversight in the 1990s, equity release has had a poor image for quite some time now.

Many people are scared off by the horror stories they have heard, despite the fact that the products and regulations have improved greatly over the previous 15 years and could be a suitable alternative for them.

The UK equity release market was worth $3.89 billion that year. Homeowners over the age of 55 can take advantage of equity release programs like lifetime mortgages and home reversions to access a portion of their property's value without having to sell their primary residence. Borrowing between 30% and 58% of a property's worth is common, and the money is put toward everything from making repairs and upgrades to the home to paying off debt and providing a "living bequest" to loved ones. Those who take the money all at once receive an average of £81,700, while those who take it in installments receive an average of £104,500*.

Equity release can be a terrific alternative for clients in a variety of circumstances," says Gerard Boon, a partner at Boon Brokers. It can be a great option for retirees who need more cash but don't want to sell their house so they can relax and enjoy their golden years. This is also advantageous because it does not incur any taxes. In any case, the most important thing is to study up and learn all the specifics you can. Involving third-party experts is not only recommended, but required. While the vast majority of lenders can be trusted and are dedicated to serving their clients, there will always be individuals who put their own interests ahead of those of their customers. Every prospective borrower should be on the lookout for certain red flags."

A homeowner's guide titled "Equity Release Companies to Avoid and How to Find a Good Lender" details some of the questions consumers should ask and scenarios which may be red flags.

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Things to consider when choosing an equity release lender:

  • Are they ERC members and FCA-approved? It is imperative that you only deal with a lender that is a member of the Equity Release Council and is licensed by the Financial Conduct Authority. The fact that they are subject to oversight is a safeguard. Without going through an FCA authorized lender, you run the danger of being mis-sold a product with no recourse.
  • It's crucial that there's a promise of no equity losses. In order to address the two most common complaints about equity release products, the ERC requires all of its members to provide a no negative equity guarantee and competitive, capped/fixed interest rates.
  • Check that you can legally stay where you are and move where you want to go. If you go with a person from the ERC, this will be the result. Some people who use equity release products run into the problem of being unable to relocate. Even if it's not in your plans, it's always good to be prepared for the unexpected and open to different paths of action.
  • Having a detailed cost breakdown will allow you to make fair comparisons. Any good lender would gladly break out the fees so you can see how they stack up against one another. Hiring a broker is a good idea because they can perform this comparison and explain the nuances for you.
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  • Find out upfront whether there are any penalties for prepayment. Learn the specifics, as some of these may be too expensive.
  • Avoid approaching anyone who offers loans before learning your situation. Be careful of any organization that offers you a substantial loan without first gathering extensive information about your life and finances.
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  • Check out what different options will cost. Although some brokers may provide our services for free, the process of obtaining an equity release involves a number of up-front expenditures, including appraisal fees, arrangement fees, legal fees, completion fees, and financial advising fees. Don't jump to conclusions; it's important to know what to anticipate.

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