"As is the case with all financial investments, equity release plans have a variety of pros and cons attached to them. As a whole, there are a number of pros and cons of an equity release plan – but you’ll find a range of products each with their own individual characteristics."
Disadvantages of equity release
- Reduced inheritance – A natural consequence of taking out an equity release plan is reduced inheritance – as you’ll no longer be able to leave your property as a gift. However, for those considering later life finance or care funding without much time to spare this may be less of a concern.
- Valuation less than market value – The amount you receive against your property is often offered at a valuation less than its market price, so you could be out of pocket if your circumstances change. You may also decide it is ideal to sell up, although this would, of course, mean that you will be unable to stay living at home.
- Impact on tax status – Enrolment can affect your tax status and entitlement to certain welfare payments and benefits. For this reason, it’s worth obtaining advice to get a clearer picture of how the change will affect you financially.
- Interest payments – Most schemes accrue interest – at fixed or variable rates. Thoroughly research providers and interest rates offer before making a decision.
- Inflexible – They can be inflexible once they have been taken out – so if your circumstances are likely to change later down the line this may not be the most ideal thing for you. For example, if you use up funds released and run out of money earlier than expected or have to move into a residential care home it may be difficult to work around your current solution.
Here is a video with the pros and cons of equity release.
