Equity release: deciding which one is best
As any other mortgage deal, equity release are massive loans that always affect personal finances to a very high degree. All these deals must be evaluated and chosen carefully. There are many different deals out there, many lenders providing their own services with terms and conditions that may vary greatly from one to another. Making the wise choice on which one to pick is fundamental for your personal finances. The wrong step could cost you dearly, not only in money but sometimes even the whole property itself could be repossessed.
Finding an advisor is practically a must when considering an equity release loan – also known as a reverse mortgage or a conversion mortgage. The world of finances is complex and full of relevant details that could mean thousands of pounds of difference between different arrangements, and even have a major effect in your children’s inheritance. Only with a competent advisor by your side you will learn about all of these details and make the right choice that will benefit you as well as your heirs.
There is a lot of online content about equity release, including tools like calculators and extensive articles on the types of deal – lifetime mortgages, drawdown mortgages, home reversion schemes, and some others – and we do encourage you to do some reading and even use some calculators to have an estimate on how much you could make out of your property. This could help you see the picture a bit more clearly, but please, remember that this information alone might not be enough for you. This kind of arrangement shouldn’t be taken lightly, and sometimes results from calculators will vary from the final quotation you receive from your lender.
Independent advice, which is not tied to any particular lender and has no personal agenda out from your personal benefit, is highly reccommendable in these cases. Even if it does cost some money, in the end you could save up so much by making the right choice that it will be definitively worth it.
Fees, instalments and schemes
The terms of any equity release deal are what makes most of the difference with other similar options. When offering a quotation, a lender will run a short background check on you and take into consideration factors like the value of the property, your age, your overall state of health, and your credit history. Based in all factors they consider to be relevant, lenders will offer you their best quotation in hopes to have you as a borrower. So you should ask several lenders and compare their offerings. Make sure that all quotations are free of compromise and there are no clauses that prevent you from closing a deal with a different lender after you get the quotation.
Nowadays these sorts of clauses are rare because the equity release market is regulated by the government, but in the early days this sort of scams was quite common, and people would lose money and get trapped into schemes that weren’t convenient for them. This contributed to the bad fame that equity release had in the early years in the UK.
However, after that the UK government made an intervention and issued a series of regulation and protocols, including changes in home-equity lines of credit in order to force lenders to openly disclose all relevant aspects of the deal to the potential client before thay made a final agreement. These aspects would include issues such as Delinquency rates on loans, instalments regime, interest rates and exclusivity clauses.
Rates you can pay
One of the biggest risks of equity release is losing track of how much your debt is piling up because in most cases you don’t have to pay any instalments while you are alive. At most, with interest only morgages you will have to pay the interests but not the instalment itself. For that reason, it might be easy to underestimate increasing debt. You should get a no negative equity guarantee, which is offered by many dealers and assures that you will never owe more money than how much your property is worth. However, late payments could make intersts pile up and all your debt will be in detriment of what you can inherit to other members of your family.
Delinquency rates on loans are in direct relation to how well planned a scheme has been. Even if unforseen circumstances can negatively affect your payments, a well designed scheme in the right terms that takes your situation into consideration, shouldn’t cause you much trouble when it comes to keeping up with repayments.