Why I decided equity release was right for me despite the negative press stories.
As I’ve said in my other posts on this subject, because I’d managed to settle my mortgage using the tax-free lump sum from my pension fund, my house was now mine and worth around £275,000. As I intended to keep it for as long as possible – maybe even until my death, I didn’t feel equity release was such a mad idea.
Like many of you, I had read the negative press stories on equity release. Reading accounts of folk who had naively taken larger amounts out of their properties and, through compound interest, found the debt on their house was larger than it’s market value.
Keeping my debt static
As I was looking for around £40,000 or 14% of the value of the property, I reasoned that this shouldn’t be an issue for me. More importantly, my plan was always to pay, as a minimum, the interest annually, to avoid any increase in the debt over time. By doing this, the debt on the property remains static whilst the value of the house rises, or at least we hope it rises…
Budgeting
However, it’s worth remembering that to do this, you’ll need to budget the interest cost – in my case this was just under £1,000 per year. In addition, under the terms of the Lifetime Mortgage I took out, I have the right within the first 15 years to pay up to 10% of the cash advanced each year – however, this percentage doesn’t roll over, so if this isn’t used it’s lost. After 15 years (and under a few other specific conditions) you can settle the full amount, which might be a desirable, particularly if you have a windfall or feel that the interest paid will add up over time.
So, is equity release right for you?
If you do your research, consider your own circumstances and budget, equity release could well be the best option. If you haven’t already, read through my other articles on equity release for more things to bear in mind before taking the plunge.
