With health and fitness becoming a worldwide trend, people live longer and have time to enjoy retirement. However, in this harsh economic climate, almost 60% of retirees are now looking for ways to maintain their lifestyles.
Pensions and capital investments may ensure you will survive your golden years, but with the invention of equity release, you can now live out the retirement of your dreams.
As a longstanding financial product, equity release has undergone growth, changes, and improvements. As a result of this, older practices that are no longer relevant, are now myths associated with equity release.
Here’s a comprehensive guide to bust equity release myths and help you understand how equity release can help you increase your retirement finances.
What You MUST Know
Before continuing, check out this quick video that summarises the most important information about equity release:
7 Myths of Equity Release
Myth 1. I will no longer own my property if I take out an equity release mortgage.
This is not true!
With a lifetime mortgage, you will retain 100% ownership of your property. While, with a home reversion scheme, you only need to sell off parts of your property, still retaining part-ownership.
Myth 2. To qualify for an equity release mortgage, I must own my property outright.
Once again, myth busted.
While you cannot have a massive mortgage, you can have some mortgage owed, and still qualify for equity release. When releasing the funds, you will first pay off your current mortgage and then keep the income balance.
You can ask your financial adviser about the specifics of the plan you select.
Myth 3. I could wind up owing more than the value of my home.
The great thing is that this isn’t possible!
Even if you live long, and your rolling interest accumulates, your family will be protected by a ‘no-negative equity guarantee’ when you pass on or move into a care home.
This refers to legislation set out by the Equity Release Council that states that you can never pay more for your equity release than the value of your property when it is sold, even if property prices plummet.
In addition, interest rates are at an all-time low, meaning that you will pay a lot less compound interest on your equity release plan.
Myth 4. I have no choice except to take equity release in one lump sum.
Yet another myth to bust!
Equity released from your home is conveniently available in one lump sum, smaller lump sums, or a monthly salary. You can also discuss a combination of these with your financial advisor.
Myth 5. I won’t be able to leave anything to my loved ones if I take out a lifetime mortgage.
While in some cases, the entire amount recouped from the sale of your home is used to pay back your equity release plan. However, the Equity Release Council has arranged for those taking out a lifetime mortgage to be able to put aside a percentage of their estate for an inheritance, this ensuring that your family members are left some money on your passing.
In addition, you can take out a lifetime mortgage to give your family an early inheritance.
Myth 6. Any money I receive from equity release will be subject to taxation.
Equity release is the perfect way to unlock tax-free income.
Research shows that 55% of homeowners using equity release don’t realise that the cash lump sum they release from their estate is tax-free. Most actually belief some tax implications are imposed when taking out the home reversion scheme or lifetime mortgage plan.
When you take out cash against the value tied up in your house, it’s not categorised as income, meaning you won’t have to pay any income tax. Keep in mind that taking out the equity release mortgage may however affect your entitlement to state benefits.
Myth 7. With an equity release mortgage, I’ll still have to make monthly payments.
You don’t have to!
While you can make monthly payments if you wish, the great thing about equity release is that you are by no means obligated to do so in your lifetime.
All income loaned, plus rolling interest, will be paid back upon your death or move into a permanent care facility.
Got Questions? Check These Out First
Can You Get Out of Equity Release?
Well, you’re not committed to taking out the equity release scheme until it’s ending.
However, if you decide to repay the mortgage before the last homeowner dies or goes into long-term care, then you’ll incur early repayment charges, which can be costly.
Could You End Up Paying More Than Your Home’s Worth with Equity Release?
No, you won’t. Since equity release providers are bound by the ‘no negative equity guarantee ‘scheme that’s put in place by the ERC, homeowners can’t pay more than the initial value of their home when the plan comes to an end.
That means that the lender will write off the balance when your estate is sold for less than the initial loan amount – your heirs won’t be left with any interest to pay off.
Is It True That You Can’t Move House Again with Equity Release?
More than 500 homeowners believe that when they take out the equity release, they’ll be stuck in that home forever. However, provided that the new estate meets the criteria of the equity release lender, there’ll be no reason to prevent you from moving and taking your mortgage scheme with you.
Of course, there’ll be costs associated with transferring the loan plan to another home. Still, the lender and your advisor will inform you about the repercussions before taking out the equity release plan.
Does Equity Release Affect Your Pension?
Luckily, equity release doesn’t affect your state pension. However, the guarantee credit part of your pension credit (the amount that tops up your state pension to increase your weekly allowance) income can be affected.
Equity release is becoming a widely accepted method to live a stress-free retirement. By unlocking the cash tied up in your home, you can unleash a tax-free income, to help you and your family live comfortably.
While many of the above myths were once true, equity release is a continuously growing and developing market. This growth comes with a regulatory body and exceptional customer protection.
In addition, you can use our equity release calculator now to find out how much equity you are entitled to release from your home.