What is Equity Release?

An equity release uses the value of an asset, typically real estate, to generate a stream of income. Similar to a reverse mortgage, an equity release typically uses an asset that has been paid off in full. The borrower does not have to make regular payments to the lender while he or she gains the income. Instead, the borrower repays the lender at a certain date in the future, typically upon death.

Who uses Equity Releases?

Senior citizens are the most common users of this type of loan. If they do not have enough money saved for retirement, they can tap into the value of their home then repay the loan upon death through payment from a life insurance policy or other revenue stream.

What are the Risks of Equity Releases?

Since a home is typically the most valuable asset an individual owns, opting to cash out on such an asset can leave a person in a compromised financial state. Individuals who elect this route risk their asset being foreclosed on if they cannot repay their debts when they are due. Since many debts are due upon death, the person taking the loan may actually leave benefactors with a financial burden if the debt cannot be repaid out of the estate funds.