I think you’ll agree with me when I say…
The safety of any product is paramount. No one wants a financial product that does not safeguard his/her interests.
That said, as with other financial products, equity release has its safety parameters that make it an excellentoption in the right circumstances.
By checking out this straightforward guide, you can find out how safe equity release is and decide whether you should take out a plan or not.
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Make Your Retirement Comfortable with Equity Release
Ever since a disastrous period in the late 1980s and early 1990s when most equity release schemes were unregulated, equity release plans have suffered from suspicion and distrust among homeowners.
Most people were terrified of taking out these plans. However, with various trade bodies in play today and with updated financial plans, things are now different.
Reasons Why Equity Release Is More Secure Today
Although equity release is one of the most popular financial product in the market right now, there are still various concerns around it, which leaves some people asking: how safe is equity release?
Well, here are some of the few reasons why equity release is considered to be more secure than in the past and can be the best decision you can make this year.
#01. The Financial Conduct Authority Regulates It
FCA is the official financial products watchdog and regulator in the UK. It oversees the equity release market.
What does it do?
The trade body authorises the lenders, brokers and financial advisers who deal in offering equity release services.
It also ensures that these lenders are following the stipulated codes of conduct.
Moreover, with FCA in play, it means you have adequate and appropriate protections in place.
#02. The Equity Release Council
The ERC is the equity release market governing body,and thus it insists that its members heed to a strict code of conduct designed to protect consumers.
Some of these safeguards include:
- Every consumer should receive financial and legal advice
- All equity release products must have a ‘no negative equity guarantee’ – meaning your loved ones will not have to repay an excess of the value of your estate was when you took out the plan
- You have the right to reside in your estate for life
- If you decide to take out the equity from your home, you have to have at least one or two face-to-face meetings with an independent solicitor
Therefore if you choose to take out an equity release plan, ensure that your plan provider is a registered member of the Equity Release Council.
#03. You Will Not Leave Your Family Buried in Debt
If you decide to take out a lifetime mortgage with an approved equity release provider, you are most likely to benefit from the ‘no negative equity guarantee’.
The ‘no negative scheme’ was set to protect you. It allows you not ever to owe more than the value of your property – and you won’t you saddle your kin with any debt. Thus, if that was something you were troubled about, you need not worry.
Even when your residence decreases in value significantly and putting it up for sale wasn’t enough to pay back your loan entirely, your lender will write it off when you breathe your last or move into long term care.
#04. You Have the Right to Remain in Your Residence
If you have no clue about the perks that come with equity release, you probably think that you sell the rights to live your home after unlocking the equity from your estate.
However, with a lifetime mortgage, you get to reside in your home. You won’t have to sell any part of your property to unlock the capital you require– you’ll be borrowing against the equity since a lifetime mortgage is a debt secured against it.
Therefore, you can continue residing and owning your estate.
Moreover, as per ERC’s rules, when you decide to unlock the equity from your property, if it is a joint partnership, you are assured to remain the sole proprietor until you both die, or you both go into permanent care.
#05. You’re Free to Move House
Most people believe that taking out an equity release plan means being tied up to your current estate forever. Well, that’s not the case. If you want to move houses, you’re free to do so.
The ERC offers you the right to take your equity release plan with you, as long as you’re relocating to a ‘suitable alternative estate’ – meaning a place that meets the lending criteria of your plan provider. It’s worth keeping in mind that if you were to move to a less expensive home, you might have to repay some of the amounts you owe, depending on your lender.
#06. You Must Consult an Advisor
As per the ERC’s regulations, you must receive advice from a suitably qualified professional before heading on to take out a plan.
Your adviser must also have taken special qualifications to become an equity release consultant, and if you’re unsure that he/she is qualified, the Equity Release Council has a member’s directory on its website where you can confirm this.
#07. You May Leave an Inheritance
Since you repay equity release plans (plus the interest) when your plan provider sells your home, it means that you won’t be able to leave your whole estate as an inheritance.
However, if there’s anything left over after everything’s been paid off, that can go to your heirs (as per your will).
If you, however, want to guarantee an inheritance for your family, your provider can offer you a particular option where you can choose to ring-fence some of the value of your estate. You only have to ensure that you let your adviser know, so they can find an equity release plan that meets your needs.
The Flexibility of Equity Release
Unlike the traditional mortgages, equity release plans provide you with safeguards that give you peace of mind. Most of the schemes don’t require you to make any repayments and, as such, you cannot get into arrears, default or have your property repossessed for non-payment.
As the equity release market continues growing and with more products coming up every day, most providers are now offering youplans with greater flexibility and choice. They include:
- Schemes with fixed interest rates for life, meaning you’ll always know how much you will have to repay in the future
- Fixed early repayment charges, you‘ll be aware of the exact penalty, if you wish to repay your plan early
- Schemes permitting you to make ad-hoc voluntary payments which in the long run aid you in managing your future balance
- Downsizing protection elements make sure you can repay your equity release scheme penalty-free if you move home after five years from the inception of the plan
Equity release can be a great option in the right circumstances. However, before making any final decisions, it’s imperative that you make sure you understand what’s involved and whether equity release is right for you.
With that in mind, you should always ensure that you seek professional advice from an independent expert adviser, who will talk you through the details, thus helping you make an informed decision.
If you have any questions on the safety, eligibility and workings of equity release plans, be sure to click here not only to see how much equity you can release but also to chat with an expert for free.
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How much money could you release?
An equity release allows you to access the value of your home, tax-free without having to sell up, so that you can have money to spend on whatever you want or need.