Although equity release has soared in popularity in recent times, many people still have misconceptions about how it works. The number of products on the market has more than tripled over the years, and there are a variety of flexible features to sort through, so your options have never been more varied. This increased choice can also make for increased complexity and is one reason why equity release is still an industry in which myths abound.
These six later life lending myths often lead to people overlooking the benefits of a Lifetime Mortgage, the most popular form of equity release. This blog will help to debunk those myths and, if you still have further questions, you can also get in contact with our expert team of advisers.
Myth 1: If you release equity in your home, you will no longer own your property
This is untrue of Lifetime Mortgages, with which you retain 100% ownership of your property. The confusion may come from Home Reversion Loans, whereby you exchange part of the ownership of your house for the money you are borrowing. However, when releasing equity, you’re still either the sole owner or a joint owner and will be able to live in the property for as long as you want to – either until the end of your life or when you move into long-term care. This also means that you’ll be responsible for maintaining your property, as it remains in your name.
Additionally, equity release is transferable, so provided you want to relocate to a property that meets your lender’s criteria at that time, you may be able to move all or some of your mortgage to the new property.
Myth 2: You will end up owing more money than your house is worth
All equity release plans that meet the Equity Release Council’s product standards are required to have a ‘no negative equity guarantee’. This means that you, or your estate, can never owe more to your lender than your house is worth when it’s sold. In the unlikely event that your house sells for less money than your existing balance with the lender and, provided it has been sold at the best price available, they will have to forgo any outstanding debt.
Myth 3: Equity release is expensive
The number of equity release products available has grown considerably in the last three years, despite a recent marginal reduction for 2023. This is great news for consumers as it means, with greater competition, lenders have become more competitive with their interest rates to attract new customers. By working with an expert adviser, you will be able to help compare the hundreds of plans that are available and ensure that you get a deal that works best for your individual circumstances. You can assess equity release plans that match your personal circumstances with the lowest available interest rates.
Moreover, all equity release plans allow you to pay off the interest as you go along, giving you the option to minimise how much you owe the lender. Again, this is something that an equity release adviser can help you with.
Myth 4: Equity release plans are inflexible
With so many later life lending products on the market, finding the right plan to work for your individual circumstances should not be a problem for an equity release specialist. Some of the different options available include:
- One-off payment or instalments: Many people believe that if they take out an equity release plan, they’ll have to receive all their money in one go. This isn’t the case: many plans will give you the option to receive your capital in smaller instalments called a drawdown, if you feel this will work better for you (this also helps to reduce the amount of debt that you will owe).
- Early repayments: plans may allow you to repay your money early, but it’s worth noting that there may be an early repayment fee. Again, this is something an adviser can help you to understand where applicable.
- Interest repayments: all plans now allow you to repay the interest on your loan as you go along, giving you the freedom to leave more to your loved ones.
Myth 5: You can’t release equity if your property is listed
Although there are restrictions on certain types of properties, a trained adviser will be able to work with you to try and find a lender if your property has certain characteristics. Having a listed house, or a house with a high acreage, can make it trickier to find a lender, but this doesn’t mean you can’t release equity full stop. With an expert who really understands the market, it’s still possible to get the right plan.
Myth 6: If you release equity, you won’t leave your family an inheritance
Releasing equity will reduce the amount of inheritance that you’ll leave your family, as the money from the sale of your house will be used to repay the loan you have with your lender. However, once this debt is repaid, you’re free to distribute your estate as you see fit.
Furthermore, some plans offer you the ability to protect some of the money that you want to leave your family. These include:
- Protected equity guarantee: Essentially, this allows you to protect a certain percentage of your house value. You can choose to protect as much or as little of your property as you wish, but it’s worth noting that the more you protect, the less a lender is likely to offer.
- Interest payment plans: By repaying some (or all) of the interest on your loan, you can reduce the amount of money your estate will owe to your lender.
- Living inheritance: Another option is starting to leave money to your family early through a ‘living inheritance’. This enables you to gift money to your family over time, rather than just giving them a single lump sum when you pass away.
If you want to continue getting the facts about equity release, we are here to help.