With current low interest rates continuing to erode income and savings, we have had a noticeable increase in enquiries from clients asking us: Should we release the capital tied up in our property?
Donnie MacLeod, a Partner in our Crieff office advises, “Often clients wish to take money out of their property by way of an equity release loan. This usually takes the form of a lifetime mortgage for those aged 55 or over. The loan is then secured against their home and the loan and interest are usually repaid from the proceeds of the eventual sale.”
An equity release loan, if done properly, is a way of paying for an upgrade or extension to a property, for example. But there are things to be aware of when tapping into your property’s equity:
• Be careful as the interest charges can mount up over time and interest rates can vary significantly.
• The compounding effect of the interest can increase the amount due to be repaid substantially, although one way of reducing the interest burden is by making monthly interest payments.
• If you decided to move house again in the future and your house value hasn’t continued to rise, you may find that having to repay the equity release loan on a sale has an impact on your future purchasing power.
• Another important factor to consider is the repayment fees as these vary significantly between lenders.
• You also need to be aware of whether or not taking out an equity release loan affects your entitlement to means tested benefits.
Donnie adds, “Although equity release isn’t right for everyone’s financial situation, if you are considering an equity release loan then it is important to consider the potential costs – we are finding that more clients are consulting us for advice in connection with this type of loan.”