Equity Release Pitfalls: Common Mistakes
If you are thinking about releasing equity in your home, there are a few things that you’ll want to consider before making this life-changing decision. While it may seem like a good idea at the time, equity release can have some pitfalls (literally and figuratively!) if not done properly.
The first pitfall to watch out for is the high interest rates that you may be subjecting yourself to when taking this type of loan. Equity release products are typically unsecured loans and as such, they have higher interest rates than secured loans, like a mortgage or HELOC – anywhere from six percent up to 13% depending on your credit score. Keep in mind that if you’re considering equity release because it’s an avenue for healthcare-related expenses then these higher balances could make repaying more difficult after retirement age.
You’ll also want to think carefully about how much money you maintain ownership of with each product option so that future needs will not go unchecked. Some providers will allow total equity releases (100%), others partial equity releases (50%), and some products will have an option for a percentage of the equity value to be released.
Hospice care is often cited as one of the most common reasons to consider using this type of loan, but it’s important that you understand how much money your family may need after you’ve passed away before picking a product with limited ownership.
There are many options when considering equity release, so make sure that you choose wisely! The right choice can help provide peace of mind in retirement or ensure that healthcare needs won’t go unmet during retirement years; however, if done wrong – these loans could end up being more trouble than they’re worth.