1. Consider all the alternatives such as moving to a smaller home. Capital raised this way will cost you less in moving expenses than in equity release set-up charges and interest.
2. If you do not wish to move, it is essential to discuss your plans with your family before proceeding with equity release. This will avoid any unnecessary family surprises later on and they may be able to suggest alternatives.
3. With many equity release schemes available it will be difficult to find the best deal yourself. Not only that, many of the schemes are available only through authorised intermediaries. So find an independent specialist in equity release advice.
Get a free 32 page guide and independent advice on equity release schemes
4. Choose your adviser carefully. Are they able to advise on entitlement to welfare benefits? Are they also conversant with all aspects of long-term care funding? Some of this may be relevant to you now or in the future. The wrong advice could cost you dearly. An adviser who specialises in all these areas will be able to explain all the relevant issues and achieve the best outcome.
5. Ask your adviser about equity release fees - and make sure you get value for money.
HOW MUCH CAN YOU BORROWLike mortgages equity release loans are offered up to set loan-to-values, the size of the loan as a percentage of your property's value.
However, equity release is offered only up to a far lower loan-to-value than a traditional mortgage - this is because interest is not paid off on the loan and instead rolls up, meaning the amount to be repaid increases over time.
Equity release providers should guarantee that you will never have to repay more than the value of your property.
The calculator below provided by equity release adviser Key Retirement Solutions shows what kind of sum can be borrowed.
6. Borrow only as much as you intend to spend or give away. You will earn much less from cash left on deposit than the interest you will have to pay for borrowing it in the first place. It could also cut your entitlement to means-tested benefits.
You may alternatively wish to consider a drawdown plan that offers a cash reserve facility. Rather than just receiving a lump sum, you have the option to release your cash over time, as and when you need it. Because interest is only payable on the cash you have taken, these plans can often prove more cost effective.
7. When comparing lifetime mortgage interest rates always pay particular attention to the APR [annual percentage rate] and not just the headline rate. The difference can add up to 0.5% on the rate actually charged.
This is due to the costs of setting up the arrangement and how interest itself is calculated. This can be daily, monthly or annually. The longer the period the better it is for the borrower. (The exact opposite is true for traditional repayment loans.)
8. Ask your adviser about continued support and advice. This could range from claiming welfare benefits, or care and support from the local authority, to mitigating inheritance tax. Advisers who specialise in elderly client advice will be in a better position to help than a traditional mortgage adviser, for example.
Make sure that you have understood the various features of equity release plans, and which are most important to you. If you're planning to take out a lifetime mortgage, how do the set-up costs vary from one plan to the next?
Do you plan to move in a few years time or is there a chance that you may wish to repay some or all of the loan at some stage in the future? Do you want to guarantee that some of your equity is protected so that it is passed on in your estate?
A good adviser should be able to talk through all of a plan's features in a way that you can understand.
9. You will need a solicitor. If you have one make sure to ask if they are familiar with equity release paperwork. Otherwise the process could take longer and cost you more in fees. There are now a significant number of solicitors who have undertaken additional training in this specialist area. Your equity release adviser should be able to introduce you to such a firm.
10. Make sure you have a clear idea on your key goals when embarking on this path. Your personal priorities and views on the direction of house prices will materially influence what is right for you. Your equity release adviser should be able to guide you. If not, seek alternative specialist advice.