Don’t get caught up in the lies told about equity release and miss out on golden opportunities!
With health and fitness becoming a worldwide trend, people live longer and have more time to enjoy retirement.
Or do they?
In this harsh economic climate, almost 60% of retirees are now looking for ways to maintain their lifestyles, and many see no way of ever having the means to retire.
Is there a way out of this conundrum? We’ll help you discover:
- The most common equity release myths and if they’re true or false.
- If equity release is a risky product.
- How to get the most out of your equity release plan.
- The history of these myths.
We’ve done a detailed analysis of equity release then and now, looked at all the history, and studied over 220 regulated plans.
Behold, a comprehensive guide to busting equity release myths. Discover these now!
What You MUST Know
Before continuing, check out this quick video that summarises the most important information about equity release:
Why Equity Release Has a Bad Reputation
Before we get into the 7 myths, it’s vital to unpack why equity release has a bad reputation in the first place.
Let’s be clear, the industry wasn’t always what it is today.
Prior to 1991, equity release was not a healthy option for retirees. The plans available back then often left homeowners with massive debt, some even losing their homes altogether. In addition, there were a lot of scam artists posing as equity release lenders.
Don’t be put off!
The 2021 equity release industry is nothing like it was back then. It’s fully regulated and designed to protect the interest of the consumer. The Equity Release Council was established in 1991 and the industry now follows a strict code of conduct.
What’s more, with massive industry growth, the competition is heating up. Lenders need to offer fantastic deals to stay in the game.
Historical Interest Rates
In the past, interest rates for equity release were exorbitant, sometimes around 7% or more.
These days, equity release mortgage interest rates are extremely low, some even competitive in comparison to regular mortgage rates.
Now, let’s debunk some myths!
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 can’t have a massive mortgage, you can have some mortgage owed and still qualify for equity release. You will first pay off your current mortgage when releasing the funds 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!
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 adviser.
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 believe 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 free equity release calculator now to find out how much equity you are entitled to release from your home.