When comparing an equity release plan to a mortgage, you’ll notice several differences. In most cases, deciding between these two is not as easy as simply comparing numbers. You also need to establish if you qualify. Mortgages have specific prerequisites, while equity release plans have different rules and regulations. For example, mortgages are often easier to obtain at a younger age, while equity release plans typically require the homeowner to be at least 50 years old to qualify.
A standard mortgage is generally paid off over a predetermined period of time. Equity release plans, on the other hand, only need to be paid in full upon sale of the home. Therefore, if the owner dies or needs to move to a long-term care facility, he or she will have to repay the agreed amount. It’s crucial to understand that if he decides to sell his home within a few years of accepting an equity release, he could be liable for early exit fees. These fees are documented in the agreement itself, so it’s always good to take your time to read everything properly. It would also not hurt to have a legal advisor review the agreement before signing it.
While some plans do not require any type of monthly payment, there are those that allow you to pay the interest monthly. The remaining amount of the real equity release will be repayable at the time of the sale of your home. A mortgage requires regular monthly payments and these must be made no matter what.
Each option has its own set of advantages and disadvantages. Remember that there are several options such as lifetime mortgages and home reversion plans to choose from, but it is important to understand exactly how each of these could work for you. Once you’ve looked at these options, you can compare them to a regular mortgage and decide for yourself which financial decision is best for your needs. It should also be noted that equity release plans allow you to build on the value of your home without forcing you to move. So you can get the money you need without downsizing or moving.
Other factors to consider include the value of your property and interest rates. That is why the help of an independent financial advisor is so important. Not only will they provide you with useful information, but since they are not associated with a specific financial institute, you will receive unbiased information.
