Falsehoods regarding equity release are rife, with many people believing untruths that are preventing them from taking advantage of the benefits of this type of finance.
In a world where people are retiring earlier and living longer, many homeowners are looking to release built-up equity in their homes. Homeowners are increasingly wanting to stay in the houses they have spent many years upgrading and making their own, resulting in an increase in the popularity of equity release finance products.
Despite the obvious advantages of equity release, there are still various myths that are preventing many people from considering this option.
I could be forced to move
This is not true! You will never be required to move from your home. Lifetime mortgages allow you to remain in the home, and you will remain the official owner with the property staying in your name.
If the property is in joint names, you will have the right to remain resident in the home until the last remaining survivor either goes into permanent care or is deceased. This is regulated by the Equity Release Council.
Interest rates roll up over time, and it’s very costly
This is not necessarily the situation. Lenders will give options regarding the repayment of interest rates. Typically, the interest will be added to the loan total and paid off in full when the home is ultimately sold to repay the loan. You can also decide if you take the equity released as a lump sum or if you prefer it to be paid out in regular payments, a bit like an income.
Many equity release providers will offer the option of paying part or all of the interest during the lifetime of the loan. This means that the interest will not ‘roll up’.
I may end up in negative equity
These days, regulations regarding the financial market are a lot more stringent than they were in the past. The FCA (Financial Conduct Authority) has introduced many regulations to protect consumers. The majority of lenders offering equity releases are also members of the Equity Release Council.
Members of the Equity Release Council are required to provide their clients with a no-negative equity guarantee, which protects the borrower from this worry. This is why it is imperative that you check that the lender you use is a member for your reassurance.
What this means for the borrower is that no matter what happens in the property market, you will never be required to pay more than the value of your home, even if it is less than the amount owing on the loan.
Will I have to take the money in one lump sum?
No, you will not have to take the funds in one go, unless, of course, you choose to do so. This type of loan is flexible, and typically, a lifetime mortgage will release the equity in one lump sum. You will need to continue to make payments on your mortgage as usual.
However, not everyone wants their funds in a lump sum and may choose a ‘drawdown’ option, which releases money in stages. By taking the funds in frequent, smaller amounts, the interest amount added to the loan each month will decrease.
My children will get no inheritance
Many parents in their twilight years will release equity in order to gift to their children as a type of ‘living’ inheritance so that they get the pleasure of seeing their loved ones use the money to improve their lives. There may be an inheritance tax that will be due at some point in the future, but arguably it is far more beneficial for them to get the money when they probably need it the most as opposed to waiting until they themselves are older and probably more established.
Equity release will not be the best choice for everyone, and it is vitally important that you educate yourself on all the pros and cons. For this reason, it is advisable that you consult with a broker who has experience in this sector before committing to any equity release product.