Equity Release: Is It Safe?
Equity release is a popular way to access your pension fund or other assets in order to generate income. It can be an attractive option for those who are no longer able to work and need someone else’s help with their finances. But, is equity release safe? Well, it isn’t safe for everyone. There are risks associated with this type of loan that you should be aware of before applying.
The risk of losing money: when using equity release as an income stream, one important consideration is whether or not the pension fund is actually worth more than was originally lent out. A risky investment portfolio could cause your pension pot – which would have provided enough funds without borrowing – to dwindle away and end up being worth less than the original loan amount after years of paying back fees and interest charges.
The risk associated with repayment: under current rules you only need to repay what remains in your fund when it matures; however, if there’s a shortfall then lenders will chase you for all outstanding debts (including their own). This means that if something goes wrong at any point during retirement this can lead to probate court proceedings.
Another risk includes that many people are not financially literate and do not understand the terms of equity release loans, which can lead to them borrowing more than they need.
To avoid all these risks, make sure you get independent financial advice before borrowing.
When deciding on the right equity release plan for your retirement it is important to do some research into what products are available and how they work. You should also consider whether you would be happy with a fixed repayment amount or if there’s flexibility in case of life events, such as an illness that might interrupt payments. Additionally, think about future changes to legislation around property rights and care homes.
Equity release can provide peace of mind when planning for retirement; however, just like any other investment, it comes with significant risk.…