The main disadvantage of freeing up equity is that it doesn't pay you the full market value of your home. You will receive much less money than you would from selling the property on the open market, although, of course, in that situation, you would still have to find somewhere else to live. Releasing equity can provide a useful way for older homeowners to access the equity accumulated on their property. It won't be right for everyone, but under the right circumstances, the capital release could be used to supplement your pension income or provide a lump sum, all while you live in your home.
A capital release mortgage involves a lender giving you cash in exchange for a portion of the proceeds from the sale of your property later on. But unlike a traditional mortgage, which you pay within a certain period of time, a capital release loan is not settled until you leave your home. If the equity release loan increases, your loved ones may not inherit anything from the property when you die. A recent report from Which? (formerly the Consumer Association) called these systems a “last resort option”.
Below are some of the key pros and cons of capital release plans that you should be aware of before deciding whether capital release is good or bad for your individual circumstances. Your advisor will help you explore all options before deciding whether releasing capital is a good or bad idea for you. Whether releasing capital is a good or bad idea depends on your personal circumstances and the reasons for releasing cash from your home. It is estimated that Britons over the age of 65 are sitting on £460 billion in bricks and cement, so it is more regrettable that the release of capital — the main mechanism for unlocking that money — systematically receives such a bad press.
Equity release mortgages are becoming more popular as people look for ways to increase their income or provide a lump sum of cash to make life more enjoyable, but whether it's a good idea or a bad idea for you will depend on your own personal situation.