What to Consider Before Deciding on Equity Release As a Debt Solution
The decision to free up equity in your home is an important one, especially if your motive is to pay off debts. An Equity Release is effectively a loan, assessing your alternative options could save you time and money, you may not even actually need to release equity in your home to solve your debt problems.
Equity Release Alternatives
First things first, let's look at alternatives to an Equity Release. Downsizing is a popular method for many homeowners; this option could be more viable, especially if you still have a mortgage to pay off. However, consider the time and money it costs to move house, you may need to pay off your debts in a hurry and need access to cash in an instant. If this is the case then consider alternatives such as a flexible drawdown plan which allows you to take out lump sums from your pension, which can be then used to pay off debts. The downside, however, is that this lump sum is subject to tax unlike an Equity Release.
Interest Rate Isn't Everything
If you are still considering an Equity Release you need to look beyond the interest rate of the plan. Whilst selecting a provider who offers a low interest is important, there are a number of other factors to take into account. If you need to borrow the money for a one off debt, will there be charges for early repayment? Can the plan be moved to another home if you choose to move? These are just a few questions you need to ask yourself.
Impact on Benefits
You should also consider the impact taking out an Equity Release will have on your entitlement to means tested benefits. The additional funds may tip you above the threshold for which you are eligible for benefits which could compound your current financial problems. If you plan to use an Equity Release to pay a one off debt than this shouldn't be too much of a problem, however, if you are looking to take an income and pay off your debts gradually then this could be an issue.
Get Experienced Financial Advice
Finally, speak with an experienced financial adviser. They will be able to compare all Equity Release plans on the market and find one that's best suited to you and your circumstances. They can also assess your debts to determine whether an Equity Plan is right for you.
Related Articles:
- Alternatives to Equity Release for Repaying Debts
- Using Equity Release to Pay Off Debts
- Equity Release and its Benefits
Site is for information only and does not constitute financial advice. E&OE.
