The Pros and Cons of Equity Release Plans

Is Releasing the Cash Tied up in Your Home a Good or Bad Idea?

Feb 1, 2009 Helen Krasner

Equity Release Schemes, which allow older or retired people to release the cash tied up in their homes, are a good idea for many, but not everyone. Here are some details.

There are a number of different types of Equity Release Plans, but they all basically allow people over the age of 55 to release some of the cash tied up in their homes. So what are the advantages and disadvantages of doing this?

The Advantages of Equity Release Schemes

The money raised can be used by older people for anything they want by could otherwise not afford. They may opt for home improvements, a dream holiday, or a new car. Some decide to help their family in their lifetime, rather than leaving them a house many years down the line. Others simply use the extra cash to give themselves a better standard of living.

Individuals continue to own their own homes, except with a Home Reversion Plan, where they exchange the ownership of the property. They can still move home, at least within the UK, taking the plan with them. They can, if they wish, protect a proportion of the property, guaranteeing that something is left for their heirs.

The Disadvantages of Equity Release Plans

By releasing funds which would otherwise remain in the property until an individual’s death, an Equity Release Scheme will reduce the size of a person’s estate and therefore the amount that can be left to their children or other beneficiaries. Since many people want to pass their houses on to their heirs, the plans should be considered carefully if this is the situation.

Additional funds made available by equity release may affect an individual’s entitlement to means-tested state benefits. Therefore anyone who is receiving any kind of top-up benefits above and beyond the state pension should take advice as to whether an Equity Release Plan is the best option for them.

While all Equity Release Schemes allow the individual to move house, this is only within England and Wales. Scotland has some different regulations, and if someone decides to move abroad, the plan would need to be repaid. Therefore these plans are perhaps only suitable for those whose lives are reasonably settled. While this probably applies to most older and retired people, it is not the case with everyone.

Therefore, while Equity Release Schemes can be a good idea for many older people, they are not suitable for everyone. Anyone considering this option as a means of raising cash in retirement should think carefully and take expert advice before going forward.

Source

A Guide to Releasing Tax-Free Cash From Your Home, Age Partnership

Other articles on personal finance by this author:-

• Savings - Where is a Safe Place to Keep Money?
• How to Make Money from Credit Cards

The copyright of the article The Pros and Cons of Equity Release Plans in Mortgages/Loans is owned by Helen Krasner. Permission to republish The Pros and Cons of Equity Release Plans in print or online must be granted by the author in writing.

Release Cash From Your Home

Comments

Feb 14, 2009 6:07 AM

Guest :

<a href="http://www.swiftcapital.com" title="equity release">Equity Release</a> is certainly something that needs to be carefully considered and when looking for a provider don't just go to the first provider, shop about and find the best deal and always look at the terms.

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