Considering Equity Release to Pay Off Debts
There are a number of ways in which you can deal with mounting debts. One of which is to take out an Equity Release also known as a lifetime mortgage which will allow you access to a tax free lump sum or monthly income which you can then use to pay off your creditors.
If you are entering retirement with debts and an inadequate pension pot exacerbated by low annuity rates, then freeing up cash locked in the value of your property could be a welcomed lifeline.
How Does Equity Release Work?
While there are a range of different Equity Release schemes on the market, they all work along the same lines, whereby a financial organisation lends you part of your property's value in return for a share of your home when you sell or die.
Equity Release is a great way of paying off debts, you gain access to your cash instantly which could be vital depending on your circumstances and your creditor's position. It could also save you money if you find you're paying through the roof on interest fees and late payment charges.
How Much Can I Get?
The amount of cash you will receive will depend on your age and the value of your property. The Equity Release provider will estimate when they think they'll be able to recover their debt through the sale of your property and at what price. They are then able to calculate how much they will provide as a lump sum or monthly income. Generally speaking, the older you are, and the more expensive your property is, the more cash you will receive.
If you live with a partner then you will need to take out the Equity Release in joint names to ensure you have somewhere to live, if the other were to die. This will, however, reduce the amount you can borrow as the lender will not get their money back until you have both left the property.
Are There Costs?
If you're considering an Equity Release as a way of paying of accrued debt then make sure you are aware of any costs involved. Some Equity Release schemes will charge you monthly interest rates, whereas others will simply take this out once your house is sold. You will also have to pay valuation and legal fees upfront with the majority of lenders.
Negative Equity Guarantee
You should also ensure that the Equity Release plan contains a negative equity guarantee which means that if the value of your property was to drop, then your debt would decrease accordingly. This guarantees that your estate is not left with debt once your home is sold.
Related Articles:
- Alternatives to Equity Release for Repaying Debts
- Equity Release as a Debt Solution
- Equity Release and its Benefits
Site is for information only and does not constitute financial advice. E&OE.
