The Cost of Equity Release
When most people think of equity release, they usually picture a senior citizen living in their home. This is because many older homeowners are considering this type of loan to help pay for day-to-day expenses or medical bills. However, there are some misconceptions about what equity release entails and how much it costs.
The true equity release costs depend on the type of plan that is being considered. For example, a lifetime mortgage may seem like it carries little to no risk because there’s an option to reverse the transaction at any time. However, these loans are often not available from traditional banks and lenders – meaning they can be more costly than other options. In addition, many people don’t realize their home must have sufficient value in order for this loan option to make sense financially.
When calculating equity release costs keep in mind that it’s not just the initial loan that will be paid back.
This is a great segue into talking about how equity release loans work and what to keep in mind, so let’s get started with understanding when these are appropriate for you:
Do I have enough time left on my mortgage? This is important to know in order to determine if this option is affordable.
Do I have the available funds for a lump sum payment? The equity release loan needs to be paid back in full at some point, meaning you need enough cash on hand now or within three years of taking out the loan. You also need enough time left on your mortgage so that it will pay off before the term ends and you are required to make payments again.
So should an equity release loan be right for me? Absolutely not – unless these conditions are met because they’ll likely result in more debt than what was taken out initially.