Horrible Stories of Bad Equity Release Decisions in 2022

Top 5 Equity Release Nightmares & How To Avoid Them
Contributors: Nicola Date, Katherine Read. Reviewed by Francis Hui
Should You Believe All the Horror Stories About Equity Release? Discover What the Top 5 Horror Stories Are & How You Can Avoid Them. • READ THIS.

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If not careful, your retirement dream can soon become a nightmare like these equity release horror stories!

If you’re over 55 and looking to release equity from your home, you must know about the horror stories involved with bad equity release decisions.

Luckily for you, we’ve combed the market, looked into numerous instances of equity release, and found the most vital stories to share.

What You’ll Learn in This Article:

    Here’s how to ensure equity release is not a bad financial decision for you and your family.

    Let’s find out now!

    5 Most Common Equity Release Horror Stories In 2022.

    The 5 most common equity release horror stories include falling victim to negative equity, through-the-roof compound interest amounts, unaffordable early repayment charges and using up all your inheritance.

    The great news is that there are ways to avoid becoming an equity release horror story statistic.

    The majority of these stories are from people who were unaware of the amount of equity released from their homes.

    This is easily avoidable if you receive clear communication from your independent financial adviser and equity release plan provider.

    In addition, the vast amount of these stories come from people who made poor investment decisions using the cash from their equity release plan.

    Unlocking too much cash and spending it badly, or selecting the wrong plan, can leave you cash-strapped in the future.

    Before considering equity release, be fully aware of the pros and cons.

    You must also be sure to think about your entire retirement and not just your short-term financial needs.

    Let’s look into these horror stories in more detail.

    Negative Equity

    Negative equity is one of the most common equity release horror stories. 

    It occurs when the interest charged on the equity release exceeds the value of the property, in which case the borrower is left owing a great deal more than what the property is worth.

    Some people make the mistake of not paying attention to how much equity they’re releasing and end up with negative equity after taking out a loan.

    Luckily there is a ‘no negative equity guarantee‘ set out by the Equity Release Council1.

    This means that when you pass away or go to permanent care, your family will never owe more than the value of your estate.

    Educating yourself about all types of investment options and equity release alternatives is essential to know exactly what risks come with each decision.

    If you’re considering an equity release plan, ask yourself the following:

    • How will my lifestyle change in the future? (This should include food and activity costs)
    • What debts do I need to pay back with my equity release money?
    • Could my plan land me with negative equity?

    Despite the ‘no negative equity guarantee’, negative equity can still be a concern because it’ll mean that none of your estates will be available for your inheritance.

    However, ask your financial adviser about inheritance protection.

    This way, you can guarantee that a percentage of your estate2 will remain open for your heirs to inherit.

    Debts That Double

    Debts that double are often associated with equity release, but they need not be.

    Many people make the mistake of not exploring other options when considering an equity release loan first before deciding what they want.

    Property owners need to explore different avenues and determine what risks come with each investment decision before going ahead with anything.

    This includes understanding potential financial consequences and lifestyle changes, negative amortisation3 loans, and doubling debts.

    Compound Interest

    Compound interest is a significant disadvantage of equity release, however, it can be avoided. 

    The interest rates and fees on an equity release plan can be much higher than with other types of loans.

    Compound interest4 is another thing to consider because the more you have in debt, the more money will be added to your loan balance every month due to this type of interest rate.

    The total cost that someone pays over time on their loan could end up being huge when they add compound interests into it, especially if high-interest rates come from not paying off what was owed quickly enough at first.

    You should also read all parts of any contract carefully to make sure everything has been fully   explained to you.

    Early Repayment Charges

    Early repayment charges are often overlooked when deciding on an equity release plan, but they can turn out to be a real horror story. 

    These charges can be a horrible surprise for those trying to repay their loan before they pass away or move into permanent care.

    Life doesn’t always go as planned, and you might find yourself needing to relocate to a new country, forcing you to pay back the loan in advance.

    Early repayment fees can be as high as 25% of the outstanding balance, making paying back a lot more difficult than expected.

    No Inheritance for Your Family

    No inheritance for your family is probably the most talked about equity release horror story. 

    It’s important to consider how much inheritance you’d like to leave behind to your family when choosing an equity release plan.

    Equity release essentially results in your estate owing money on a home that would usually be paid off in full.

    You can opt for inheritance protection or give your family an early inheritance with your equity release money. 

    Speak to your financial advisor about the matter.

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    4 Little Known Truths About Equity Release

    There are 4 little-known truths about equity release such as being able to move home or still being able to leave an inheritance for your loved ones. 

    These ‘truths’ might sway your decision on equity release. 

    Let’s have a closer look. 

    Equity Release Is More Than a Lifetime Mortgage

    Equity release is more than a lifetime mortgage, even though many people use the term to describe just that. 

    Equity release enables you to access the cash value of your home in 2 ways: 

    • Through a lifetime mortgage.
    • Through a home reversion plan.

    Both options offer a means of accessing the cash in your property, and both have their own pros and cons. 

    When it comes to equity release horror stories, it’s important not to brush all equity release plans with the same comb. 

    What could end up as a horror story in one situation could easily turn into a success story in another. 

    It’s exactly for this reason that exploring all of your available options is so vital. 

    You Don’t Have to Be Retired to Enjoy Equity Release

    You don’t have to be retired to enjoy the benefits of equity release; in fact, in most cases, you can apply from as early as 55. 

    Although you’re likely to receive more money the older you are, equity release could be a means of reaching that early retirement goal you set for yourself when you were 30.

    As with all financial decisions of this scale, it’s vital that you fully explore all your options and all the pros and cons before settling on a plan. 

    You CAN Still Leave an Inheritance With Equity Release

    You CAN still leave an inheritance with equity release, contrary to popular belief. You just need to know how to do it. 

    By doing your homework and getting the right advice from an experienced equity release advisor, you’ll be able to explore plans that offer inheritance protection. 

    This will enable you to ring-fence a portion of your equity as a guaranteed inheritance for your family. 

    You CAN Move House With Equity Release

    You can still move house if you have an equity release plan in place. The Equity Release Council requires providers to allow for this. 

    The only condition when doing this is that you must move to a property that your provider deems an acceptable alternative. 

    A Real-World Example of an Equity Release Horror Story

    With her mother’s health deteriorating, Rosemary had no choice but to move in with June to care for her. 

    Sadly, 8 years later, June passed away, leaving Rosemary to plan the funeral and sort out the mountain of paperwork involved with a death. 

    With all of that on her plate, Rosemary received a repossession demand from an equity release company that had sold a plan to her mother years before. 

    A repossession notice is bad enough, but to rub salt into a very raw wound, the company demanded that Rosemary vacate the property within a month. 

    Thankfully, after many distraught emails, Rosemary was able to extend that by a further 2 months. 

    Going through a family death is devastating enough without being evicted from your family home. 

    This is a particularly emotional horror story of how equity release can go wrong and even more reason for you to do thorough research before committing to any equity release scheme. 

    Are There Any Equity Release Success Stories?

    Yes, there are many equity release success stories to read about. 

    Equity release has helped many people in various ways. 

    Some of these success stories include using a lifetime mortgage to: 

    • Clear an existing home mortgage. 
    • Fund grandchildren’s private education.
    • Make urgent home repairs.
    • Invest in the family business. 

    What Are the Pitfalls of Equity Release?

    The pitfalls of equity release include compound interest and early repayment charges. 

    Here are some more cons that you must consider and discuss with your advisor:

    • Interest can double your initial debt
    • It may affect your eligibility for benefits
    • Early repayment fees
    • May not be able to leave an inheritance
    • Expensive set up costs

    Although these are some valid negatives that you must consider, with the right advice from an experienced adviser, you’ll be able to avoid most, if not all, of them. 

    Which Company Is Best for Equity Release?

    The company that’s best for equity release will depend on the type of equity release plan you would like to go for and on your financial circumstances and goals. 

    Discussing all of your options for a whole-martket advisor will put you in the best position to decide on a the best company and the best plan for you. 

    Find out which company is best for equity release according to our team of experts. 

    Which Equity Release Companies Should You Avoid?

    Determining which equity release companies you should avoid can be quite tricky, but there are a few guidelines you should follow. 

    Avoid equity release companies that:

    • Aren’t a member of the Equity Release Council.
    • Don’t offer capped or fixed interest rates.
    • Don’t offer a ‘no-negative equity guarantee’.
    • Charge High repayment charges.
    • Don’t offer you the right to remain in your property for life.
    • Don’t offer you the right to move to another property.
    • Approve large loans without assessing financial circumstances.

    Should I Let Equity Release Horror Stories Put Me Off?

    No, you shouldn’t let equity release horror stories put you off. 

    With the Equity Release Council overseeing the industry and with expert advisers out there, you can certainly find a safe equity release plan to suit your needs. 

    How to Avoid Equity Release Horror Stories?

    You can avoid equity release horror stories and falling prey to them by discussing your options in detail with your advisor and only releasing the amount of equity you require. 

    What do we mean by this, and what else can you do? 

    Let’s have a look. 

    Do Your Research

    Do your research before committing to any form of equity release. 

    The whole concept of equity release can be difficult to understand even if you speak to an expert. 

    That’s why doing your own research beforehand is so important. 

    Talk to friends or family who have already released equity, do your research online, make a list of questions and then contact an advisor. 

    Have a little bit of background information is a great way to ensure you’re in the best position from the get-go. 

    Discuss Your Options With an Advisor

    Discuss your options with a qualified and experienced equity release advisor who’ll be able to examine your financial situation and determine which plans would be best suited and most beneficial to you. 

    Only Take Out What You Need

    Only take out the amount of equity you need. 

    As tempting as it is to release a large sum of money to have available when you need it, it could be a costly mistake. 

    Remember that interest is going to build up on the whole amount you release and will roll over from month to month. 

    By only releasing the amount of money you require, you’ll avoid unnecessary interest fees that can sometimes be crippling at the end of the loan term. 

    Common Questions

    What Are the Long-Term Implications of Equity Release?

    How Can I Protect Myself From Equity Release Horror Stories?

    How Can I Avoid the Financial Consequences of an Equity Release Plan?

    How Do I Know if I Can Trust My Equity Release Lender?

    What Steps Do I Need to Take if I Want to Avoid Doubling My Debts?

    Where Can I Find Unbiased Equity Release Advice That I Can Trust?

    In Conclusion

    It’s important to do your research.

    Be sure to explore all of the available options and consult with a financial advisor before committing yourself to an equity release agreement.

    You don’t want to be stuck in debt for years or decades.

    Equity release isn’t right for everyone, as proven by these equity release horror stories, but it can work out well and provide life-altering financial solutions under the right circumstances.

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