4 Little Known Truths About Equity Release

Equity release is a financial option that allows homeowners aged 55 and above to access a percentage of their home's value without making regular repayments.

It has become a popular method for retirees to enhance their retirement income.

While many people are familiar with the concept of equity release, there are several little-known truths about this financial tool that are worth exploring.

In this insight, we will delve into four key truths about equity release that you may not be aware of, don't risk your future retirement without understanding how equity release really works.

Key Takeaways

• With equity release, you'll never owe more than your home's value, thanks to the 'No Negative Equity' guarantee provided by the Equity Release Council. This safeguard protects you and your heirs, even if your home's sale doesn't cover the loan.
• You can still leave an inheritance to your loved ones while using equity release. By choosing Inheritance Protection, a portion of your home's value is reserved for your beneficiaries, ensuring they receive something regardless of the loan's size.
• Equity release is available for individuals over 55, not just retirees. It can be part of your retirement planning, offering control over your retirement income.
• You can move house with your equity release plan, as long as your new property meets your provider's loan security requirements. This feature allows you to relocate without complications or penalties.

4 Little Known Truths About Equity Release

You Won't Ever Owe More Than Your Home's Worth

One of the most important safeguards in equity release is the 'No Negative Equity' guarantee. This guarantee, introduced by the Equity Release Council, ensures that you and your heirs will never owe more than the value of your home. Even if the sale of your home does not generate enough funds to repay the equity release loan, the difference will be written off by your provider. This means that you are protected against any future decline in house prices, giving you peace of mind that you will not be burdened with additional debt.

To benefit from the 'No Negative Equity' guarantee, it is crucial to choose an equity release plan endorsed by the Equity Release Council. By checking the Council's database, you can verify whether your chosen provider is a member and ensure that you are fully protected.

You'll Be Able to Leave an Inheritance

Contrary to popular belief, taking out an equity release loan does not mean that you have to sacrifice leaving an inheritance to your loved ones. By opting for Inheritance Protection, you can guarantee that a portion of your home's value will be set aside for your heirs. This feature allows you to ring-fence a specific amount of equity, ensuring that it will be passed down to your beneficiaries regardless of the loan's size. While choosing Inheritance Protection may result in releasing a lower amount of equity, it provides the reassurance that you can still leave a legacy for your loved ones.

You Don't Have to Be Retired to Benefit From Equity Release

One common misconception about equity release is that it is only available to retired individuals. In reality, most providers only require borrowers to be over the age of 55. This means that you do not have to wait until you have officially retired to access the benefits of equity release. By considering equity release as part of your retirement planning, you can potentially alleviate financial concerns and have more control over your retirement income.

You Can Move House With Equity Release

Another little-known truth about equity release is that you can move house with your equity release plan. As long as your new property meets the loan security requirements of your equity release provider, you can transfer your plan to your new home. This flexibility is an important feature outlined by the Equity Release Council's product standards. It ensures that borrowers have the freedom to relocate without any complications or penalties.

Additional Truths About Equity Release

In addition to the four key truths discussed above, there are several other important facts to consider when exploring equity release:

Can You End a Lifetime Mortgage Early?

Yes, you can end a lifetime mortgage early. However, it is essential to be aware that there may be Early Repayment Charges involved if you choose to repay your lifetime mortgage before the agreed term.

Are You Protected When Using Equity Release?

Yes, you are protected when using equity release. The Equity Release Council has implemented various measures to ensure consumer safety. This includes mandatory advice from qualified professionals, a 'No Negative Equity' guarantee, and other guarantees and assurances provided by Equity Release Council members. Additionally, the equity release sector is regulated by the Financial Conduct Authority (FCA) to ensure consumer protection.

Is Releasing Money From Your Home a Last Resort?

No, releasing money from your home through equity release is not always a last resort. For many older homeowners in the UK, who have significant equity tied up in their properties, equity release can be an appealing option to access funds for various purposes such as home improvements, debt consolidation, or lifestyle enhancements.

Are There Different Types of Equity Release?

Yes, there are two main types of equity release: lifetime mortgages and home reversion plans. Lifetime mortgages are the most common form of equity release and involve borrowing against the value of your home, with interest added over time. Home reversion plans, on the other hand, involve selling a percentage of your property to a reversion company in exchange for a lump sum or regular income.

Do You Have to Make Monthly Payments With Equity Release?

No, you are not required to make monthly payments with equity release, unless you choose to do so voluntarily. With a lifetime mortgage, interest can be added to the loan amount over time. However, if you wish to prevent the interest from accumulating, you have the option to make voluntary payments or partial capital repayments up to a certain percentage each year.

Will You Still Own Your Home?

Yes, with a lifetime mortgage, you will still retain full ownership of your home. However, if you opt for a home reversion plan, you will sell all or a portion of your property to the reversion company in exchange for a lump sum or regular income. This means that you will no longer own 100% of your home's value.

Can You Release Equity if You Still Have a Mortgage?

Yes, you can release equity even if you still have an existing mortgage. However, your current mortgage will need to be repaid using the funds released from your equity release plan. Once your mortgage is settled, you will receive the remaining funds.

Can You Make Repayments to Reduce the Loan?

Yes, you have the option to make repayments to reduce the loan amount. Many lifetime mortgages now offer the flexibility to make partial or full repayments without incurring penalties. This feature allows you to manage the growth of your loan and potentially reduce the impact on your estate.

Will Your Family Be Left With Debt?

No, your family will not be left with debt from your equity release plan. The 'No Negative Equity' guarantee ensures that your estate will never owe more than the value of your home. If the sale of your property does not cover the outstanding equity release debt, the provider will write off the difference, protecting your family from any additional financial burden.

Will You Be Forced to Move Out If Your Partner Dies or Moves Into Long Term Care Facility?

No, you will not be forced to move out of your home if your partner dies or moves into a care facility. In the case of a joint lifetime mortgage, your home will only be sold once the last surviving partner has also moved into care or passed away. This provides you with the peace of mind that you can remain in your home for as long as you choose.

What are the dangers of equity release?

Equity release lets you tap into your home's value, but risks include reduced inheritance, accumulating interest rates, limited flexibility, impact on benefits, and complex terms. It may affect care costs, tie up your home's worth, and bring unexpected fees. Consider advice and options wisely before using equity release.

Conclusion

Equity release can be a valuable financial tool for homeowners aged 55 and above, offering the opportunity to access funds without the need for regular repayments. By understanding the little-known truths about equity release, you can make informed decisions about whether it is the right option for your retirement plans. It is important to seek advice from a qualified financial advisor who can guide you through the process and help you navigate the complexities of equity release. Remember to choose reputable sources and consult reliable information to ensure you have a comprehensive understanding of the advantages, disadvantages, and safeguards associated with equity release.