For many people thinking about equity release they may have failed to consider the alternatives to releasing equity. However, these alternatives may represent a better financial option. It is important to explore any potential alternatives to releasing equity and equity release advisors are legally obliged to ensure that you are aware of the alternatives and the implications of proceeding with an equity release scheme.
Why Do Advisors Question About the Alternatives to Releasing Equity?
The equity release industry is highly regulated by the FCA to ensure that consumers are protected. The main reason for this is the potential long term consequences which are associated with an equity release scheme including the amount of inheritance it is possible to leave to your beneficiaries. Each advisor must explore the alternatives to releasing equity and make you fully aware of the costs which are applicable with the scheme in addition to any potential restrictions or limitations associated with equity release. This will allow you to make an informed decision as to which is best suited to your needs.
What Are the Alternatives to Releasing Equity
1. Downsizing in to a less expensive property to release the equity in your current home in this way. This option would mean that you would need to move home, but would not place any restrictions on your new property. However, many people are reluctant to leave their home and would rather avoid moving. Additionally, the property market may mean you might struggle to sell your property.
2. Whether there is any form of benefits which is currently not being claimed for but could assist you financially. For example, council tax credit or pension credits. It may be possible that there are some financial benefits which you would qualify for but are not currently receiving. This could provide you with additional disposable income which could reduce any current financial strains or pressures.
3. If there are any children, grandchildren or other family members who could provide some financial assistance. This may provide a potential alternative to releasing equity. However, many people consider equity release as a measure for inheritance tax planning or to aid children or grandchildren to enter the property ladder for themselves. In these instances, it would be counterproductive to receive financial assistance from family members
4. If there are any other forms of financial product such as personal loans, conventional mortgages or credit cards which would be better suited to your current circumstances. If you are suffering from short term financial issues, there may be a form of credit which is better suited to your requirements. However, many other forms of credit may not be a viable option for you. Many loan companies are prejudiced against older people with limited disposable income. Additionally, there may be interest charges which are far higher and make this option extremely costly.
5. If an additional income could be accomplished by renting out a part of your property or taking on a lodger. This form of additional income can be a valid alternative to releasing equity for some people. However, in many cases, people are reluctant to subject themselves to sharing their home with strangers or other people. This option will compromise the privacy of the home owner and it may not be an option which older people living on their own would consider.
6. If the primary aim for the equity release is to fund your home improvements, are there any grants which could be used to provide financial assistance. There are a great number of grants available for home modifications and improvements. There are also charitable organisations who offer assistance for older people. It is important to explore this alternative to releasing equity if you are planning on using the lump sum to invest in property improvements.
7. If there are any current available savings which could be used rather than borrowing on an equity release scheme. If you have savings which are currently in short or long term investments, they may present a better alternative to releasing equity. However, in cases where you may be trying to plan for inheritance tax mitigation or to secure an additional income, this may not be possible. Alternatively, you may have little savings and require the lump sum for your own reasons.
8. If there are any ways to reduce your expenditure to make some financial savings. If you are looking to use equity release to increase your disposable income, it is important to explore if there are any ways to make financial savings through budgeting. However, many people don't want to compromise their quality of life and wish to enjoy a comfortable retirement the lump sum or additional income could provide.
If you are considering an equity release scheme, it is important to explore the alternatives to releasing equity. This will ensure that you are happy and confident to proceed. Your equity release advisor will explore these options with you to ensure that it is the option best suited to your needs and you have made an informed decision.
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