Equity release myths and misconceptions busted
If you’re thinking about releasing cash from your home it’s likely that you’ve already come across some of the common misconceptions. From concerns over safety to potential inheritance disputes we address them all, so that you are armed with the facts. And if you still have questions our advisers are always happy to talk.Speak to an adviser
Common myths about equity release
Myth #1: I’ll end up owing more than my home is worth
Provided you take out an equity release plan with a lender approved by the Equity Release Council (ERC) you can never owe more than your house is worth, as they come with a no negative equity guarantee. We only recommend ERC approved plans.
This ensures you will never owe more than the value of your home when it is sold and cannot pass a debt on to your loved ones. In the unlikely event that your home sells for less than the amount of the mortgage, the remaining balance will be written off.
Myth #2: Equity release is unregulated and unsafe
All equity release lenders, brokers and advisers are regulated and supervised, by the Financial Conduct Authority (FCA). This means they must get permission from the FCA to sell equity release products.
The Equity Release Council (ERC) – a trade body that represents the equity release industry – also provides another level of protection because all members have to follow their Statement of Principles. These are safeguards to protect you, including a no negative equity guarantee, the right to stay in your home for life and the ability to move (subject to criteria).Plus, all of our regulated financial advisers are fully qualified for equity release and have in-depth industry experience – so you know you’re in good hands.
Myth #3: I can’t release equity from my home because I’ve still got a mortgage on it
Having an existing mortgage doesn’t mean you can’t release equity from your home. In fact, using equity release to pay off an existing mortgage is one of the most popular uses!
A lifetime mortgage works in the same way that a conventional mortgage does e.g. is a loan secured on your home. When you receive the cash from your equity release plan some or all of it is used to repay your existing mortgage, all in the same legal transaction. You’ve then got a lifetime term with no worries over repayment.
If you do want to make regular monthly interest payments can with an interest only lifetime mortgage. If/ when you can’t afford to pay anymore (or miss three payments) the mortgage doesn’t default – it automatically switches to a roll-up lifetime mortgage. This means that unlike a conventional mortgage you are not in danger of losing your home by not repaying,
Myth #4: Equity release is an expensive way to borrow
You might be surprised at how cost-effective lifetime mortgages have become in recent years, with many lifetime mortgages now offering an interest rate below 3%. Your plan (and therefore interest rate) will depend on your age, house value and the type of plan that you choose, but usually average around 2.5%-4.5%.
In addition, you could take out a drawdown lifetime mortgage – you withdraw an initial lump sum and leave further funds in a reserve that can be accessed (drawn down) at a later date. Interest is not charged on the reserve until the money is released, providing you with a fund to use as needed in the future. This can offer you an effective way of limiting the roll-up of compound interest.
Myth #5: If I take out equity release, I won’t be able to leave my loved ones an inheritance
Lifetime mortgages have become increasingly flexible in recent years and there are now plans available which allow you to ringfence a percentage of your equity for inheritance – known as inheritance protection. If you choose to do this, you won’t be able to borrow as much because the loan is based on your home’s value without the percentage you’ve asked for as an inheritance guarantee.
Another way to guarantee an inheritance for your loved ones is to give them a ‘living inheritance’. This means giving them financial support, maybe for a deposit for a home or helping them through university, whilst you’re still around to share these precious moments with them. It’s important to remember though that using a portion of your equity now means there will be less available to you later and may reduce the value of your estate.
Myth #6: I’ll no longer own my home if I release the equity
With a lifetime mortgage – the most popular type of equity release – you don’t sell your home to the lender: you are simply borrowing against it and you remain the owner. Unlike a conventional mortgage, a lifetime mortgage has no fixed end date, so the mortgage lasts for as long as you need it to. If you do want to sell all or a part of your home you could explore a home reversion plan.
Myth #7: I’ll have to make monthly payments
There are typically no monthly payments to make with a lifetime mortgage – unless you choose to make them. Interest only lifetime mortgages enable you to make monthly interest payments without penalty for a long as you want to and are able to.
If you choose not to do this, interest on the amount you’ve borrowed will roll up over time. This only will be paid back when the home is sold, either when you pass away or move into long-term care. If you’ve taken out an equity release plan as a couple, it will continue for as long as one of you remains in your home.
Myth #8: I have to take equity release as a lump sum.
Depending on the type of lifetime mortgage you choose, you can get a one-off lump sum. But, if you don’t need the full amount straight away your adviser will likely recommend a drawdown lifetime mortgage that allows take a lump sum, then draw down the rest in stages.
Myth #9: Taking out an equity release plan means I could be thrown out of my home
All Equity Release Council approved plan (the only ones we recommend) come with the right for you to stay in your home for a lifetime. That means that you – and your partner if in a joint plan – can continue to live in your house rent free until you pass away or home into long-term care. It’s at this point that your home will be sold and the loan repaid.
Myth #10: Releasing money from my home is a last resort
It’s very likely that your home is your biggest financial asset so using to fund a happy retirement can often make great financial sense. From making home improvements, to supporting loved ones, or just wanting to make the most out of your retirement, the money really is yours to spend in any way you want.
Get the facts from a specialist adviser
To ensure you get the best advise all of our advisers have many years experience and are industry-qualified to answer all your questions – no matter how big or small.
We also suggest family members join you, to understand the implications of equity release and ask any questions they may have. It’s important that you all understand how equity release will affect potential inheritance and how your entitlement to means-tested benefits could be affected now or in the future.
Our friendly advisers can help you to explore equity release – and the alternatives – with no jargon, pressure or bias, without it costing you a penny. Only if you choose to proceed and your case completes would our advice fee of £995 be payable – and this can be added to your loan.
They will also help you to consider all of the ‘Things to think about‘.Read things to think about
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