If you’re concerned about your finances in later life, you may have thought about releasing equity from your home. But you might also have concerns about equity release based on what you’ve heard in the past. Equity release plans have improved greatly, so here’s some common myths busted…
Equity release is a scheme where you unlock some of the money (equity) in your property to use as you wish. You may want to gift a deposit to your children to help them get on the property ladder or carry out repairs on your home. Other possible uses include taking the holiday of a lifetime, enjoying your retirement or not having to sell and downsize.
Equity release can offer financial peace of mind. According to Scottish Widows’ 2020 Retirement Report, 54 per cent of people are concerned about running out of money in their retirement. If you have equity in your property, you may want to consider it after seeking expert advice.
It’s important to know that equity release plans have improved a great deal in recent years. There was a time when interest rates were considerably higher. Interest rates are now averaging around three to four per cent compared to six or seven per cent in the past. You can even try to pay off the interest, but this is not compulsory.
Some people are nervous of equity release schemes and there are many misconceptions about them. Here’s some key myths about equity release followed by the true facts…
Myth 1: You won’t be able to move house
If you decide to move in the future, most equity release providers will allow you to transfer your product to another property. However, they will want to be sure that the new property is acceptable.
Myth 2: You could end up owing more than your home is worth
So long as the plan is approved by the Equity Release Council, you will never owe more than the value of your property. If your home sells for less than the amount of the loan (which is very unlikely) the debt will be written off. All of the plans we offer are regulated by the Equity Release Council.
Myth 3: You will have to make monthly payments
With a lifetime mortgage – the most popular type of equity release plan – you don’t have to make any monthly payments unless you want to. You may be able to pay up to 10 per cent of the loan amount per year. If you don’t pay any interest, it will roll up over time and will be paid back when your home is sold.
Myth 4: Your partner will have to move out if something happens to you
Provided you’ve taken out the equity release plan as a couple, it will continue for as long as one of you stays in your home. You also have the right to remain in your home until either the death of the second applicant or when you or the second applicant moves into long-term residential care.
Myth 5: You don’t own your home
This depends on the type of plan. A lifetime mortgage is a loan secured against your home. The loan isn’t paid back until the last living borrower dies or moves into long-term care. You still own your home and can remain in it until you die.
Another type of equity release scheme is a home reversion plan. You don’t pay any interest on the scheme but will receive a cash sum for selling part or all of your home to your equity provider. They will grant you a lease which means you can remain in your home for the rest of your life. We only offer lifetime mortgages.
Myth 6: Equity release plans can be expensive
Lifetime mortgages are more competitive now and there is a wider range of options available. The interest rate may depend on your age and the value of your home.
Myth 7: Your kids will be left with nothing
Your children may not inherit as much as if you had left your entire home to them, as equity release plans will reduce the value of your estate. However, it doesn’t necessarily mean they won’t receive anything. With a lifetime mortgage, if you leave your home to your children in your will, whatever profit remains after the home is sold and the loan repaid will be received by your children.
Some lenders offer the option to protect a percentage of your home’s future value to leave to your beneficiaries, regardless of what happens to house prices.
So who is eligible for equity release?
You must be a homeowner aged 55 or over, and your home must be worth at least £70,000. If you are applying with someone else, the youngest person must be aged 55 or over. You must be a UK resident and your property must be in the UK. There is usually a minimum amount you can borrow of around £10,0000.
You don’t have to draw all of the money in one go
One key benefit of a lifetime mortgage is that you can also access funds in future. You agree a loan amount, you draw some of it but don’t have to draw all of it in one go. You can draw the remaining amount at a later date as and when you need it. Interest accrues on amounts as they are requested. This can heavily reduce the overall cost of borrowing.
To find out whether or not equity release is right for you, or to discuss other borrowing options, please get in touch with us and we’ll be glad to offer you a free consultation with our equity release specialist. You can also download our free guide to equity release.