Equity release is a financial option that allows homeowners aged 55 and above to unlock the value tied up in their homes. However, there are several misconceptions surrounding equity release that often lead to confusion or hesitation. In this blog, we will debunk some of the most prevalent myths surrounding equity release, providing you with a clearer understanding of this financial solution.
Myth #1: I’ll Owe More Than My Home’s Worth
Fact: This myth is not accurate. Equity release plans offered by reputable providers are designed to ensure that you never owe more than the value of your home. Should the mortgage eclipse the value of your home for any reason, the Lender will have to accept any loss. This is one of the many safeguards in place, called the no-negative-equity guarantee. With this in place you can have peace of mind knowing that you will not pass on any debt to your loved ones.
Myth #2: Equity Release Is Unregulated & Unsafe
Fact: Equity release is highly regulated by financial authorities such as the Financial Conduct Authority (FCA) in the UK. The industry is subject to strict rules and regulations to protect consumers. Reputable equity release providers adhere to these regulations, ensuring that the process is safe and transparent for homeowners.
Myth #3: Equity Release Is Always an Expensive Way to Borrow
Fact: While equity release can involve costs, such as arrangement fees and interest charges, the market has become more competitive, leading to a wider range of products with different interest rates and terms. Consulting with a qualified financial advisor, such as us here at Later Life Money, can help you find a suitable plan that aligns with your needs and objectives.
Myth #4: I Won’t Be Able to Leave My Loved Ones an Inheritance If I Take Out Equity Release
Fact: Many equity release plans offer inheritance protection features, allowing you to ring-fence a portion of your home's value as an inheritance for your loved ones. This ensures that you can still leave a legacy, although it may affect the overall value of the inheritance. In addition, you could make payments to cover the interest and possibly reduce the capital element to protect more of the estate.
Myth #5: I’ve Got a Mortgage, so I Can’t Take Out Equity Release
Fact: Having an existing mortgage does not necessarily disqualify you from equity release. It is possible to use equity release to pay off an existing mortgage or consolidate other debts. Raising money to pay off an existing mortgage coming to its end of term is one of the many objectives Equity Release can be used for. Your eligibility will depend on various factors, including your age, property value, and outstanding mortgage balance.
Myth #6: My Home Will No Longer Belong to Me If I Take Out Equity Release
Fact: With a lifetime Mortgage equity release, the type we at Later Life Money will Advise on, you retain full ownership of your home throughout your lifetime or until you move into long-term care. The property remains yours, and you have the right to live in it as long as you wish.
Myth #7: I Can Only Take Equity Release as a Lump Sum
Fact: Whilst an initial lump sum of £10,000 is typically required, equity release plans now offer flexible ways to access any additional funds available. This is by way of a ‘cash reserve’, and this can be drawn in increments of anywhere between £500 up to the entirety of the cash reserve facility. The benefit of this, is you would not pay any interest on the money in the cash reserve, until you decide to draw upon it.
Myth #8: I’ll Be Required to Make Monthly Payments
Fact: All of the equity release plans available do not require monthly repayments. Instead, the loan and accumulated interest are repaid when the property is sold, typically upon your passing or when you enter long-term care.
Myth #9: I Could Be Thrown Out of My Home If I Take Out Equity Release
Fact: Equity release plans include a provision for a lifetime tenancy agreement, ensuring that you have the right to live in your home for the remainder of your life or until you move into long-term care. You retain full usage and control of your property.
Myth #10: Releasing Money From My Home Is a Last Resort
Fact: Equity release is not solely a last resort. It can be a viable financial option for homeowners who wish to enhance their retirement lifestyle, manage debts, or fund long-term care. Exploring the suitability of equity release with a qualified advisor can help you make an informed decision. Your home can be viewed as another pot of wealth.
Myth #11: My Partner Will Have to Move Out if I pass first.
Fact: Provided your partner meets the criteria for Equity Release, all Equity Release plans include the option for Joint Applications, allowing both partners to be named on the plan. In such cases, the surviving partner can continue living in the property until they choose to sell and move elsewhere, or in the event of their own passing or moving into long term permanent healthcare.
It is important to note that plans under one partner can be done for couples, but advice would be needed in this area to discuss the considerations and whether this would be right for the applicant.
Myth #12: Equity Release Isn’t a Safe Form of Borrowing
Fact: Equity release has evolved significantly over the years, and the industry is now subject to rigorous regulation and consumer protection. Reputable equity release providers prioritize transparency, offer safeguards, and provide advice to ensure the safety and suitability of the product for homeowners. All Equity Release Council members abide by the following standards:
· All products are portable to a new property.
· ‘No Negative Equity Guarantee.’
· Guaranteed Tenure for Life.
· The right to make penalty free payments.
· The interest rate is fixed or capped for Life.
Equity release is a flexible financial solution that can help homeowners access the wealth tied up in their property. By debunking these common myths, we hope to provide you with a clearer understanding of equity release and its potential benefits. As with any financial decision, it is essential to seek advice from a qualified professional to determine if equity release is suitable for your individual circumstances.
If you find yourself interested in learning more about Equity Release, or think you may be interested in applying, we here at Later Life Money would be happy to assist you with Equity Release Advice and help you throughout the process from the initial stages all the way to completion.