Little-known truths about equity release include the impact on inheritance, the possibility of moving house with a plan, and the protections offered by regulated lenders.
What Are Some Little-Known Truths About Equity Release? Will You Be Able to Leave an Inheritance? Find the Facts You May Not Know.
This article contains tops tips from our experts, backed by in-depth research.
Katherine Read Is a Financial Writer Known for Her Work on Financial Planning and Retirement Finance, Covering Equity Release, Lifetime Mortgages, Home Reversion, Retirement Planning, SIPPs, Pension Drawdown, and Interest-Only Mortgages.
Bert Hofhuis Is a Founder & Entrepreneur Simplifying the Complexities of Later Life Planning. He Navigates the Intricacies of Equity Release, Lifetime Mortgages, Reverse Mortgages, and Wealth Management With Clarity and Expertise.
Paul Is an External Compliance Expert and the Director of Alpha Capital Compliance Limited, Known for Its No-Nonsense Approach to Financial Compliance. With Expertise in Regulatory Updates, Compliance Auditing, and Due Diligence, Paul Is a Trusted Name in UK Finance.
Francis Hui Is Senior Risk Manager With a Wealth of High-Level Experience Across the Industry, and a True Expert at Helping UK Citizens Make Smart Financial Decisions and Manage Risk.
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Key Takeaways...
Although a useful tool for accessing home equity, it can reduce your estate's value and possibly affect your eligibility for means-tested benefits.
If you live longer or house prices fall, it could result in costing more than the value of your home.
Opting for it can often mean you will not be able to pass on the full value of your home to your heirs.
These schemes in the UK are regulated by the Financial Conduct Authority (FCA), providing a level of protection for homeowners.
It is not widely known that interest rates for this option are typically higher than standard mortgage rates.
In This Article, You Will Discover:
These 4 little know truths about equity release could surprise you.
With annual lending reaching £6.2bln in 2022, you may want to find out more about this later-life financial option.1
Therefore...
Equity Release Benefits Are Not Limited to Retirees
Equity release is often associated with retirees seeking to enhance their retirement finances, but it's benefits are not limited to retirees.
In the UK, most lifetime mortgage products are available for homeowners aged 55 and older, whether retired or not.
Whether it is paying off existing debts, funding home improvements, supporting loved ones, or enjoying a better quality of life, equity release can offer a flexible solution that caters to a range of individual circumstances.
Consider that the suitability of equity release will depend on your individual financial circumstances.
You Can Still Move House With Equity Release
One common misconception about equity release is that it restricts homeowners from moving houses.
However:
It is important to know that you can still move house with equity release.
In fact, many equity release products offer a feature called "portability."
This means thatif you decide to downsize or move to a different property at a later stage, you can transfer your equity release plan provided the new home is approved by your lender.
You Will Never Owe More Than the Value of Your Home
The guarantee ensures that when your property is eventually sold, neither you the homeowner, nor your estate, will be responsible for any outstanding debt exceeding your home’s value.
You Can Preserve Your Inheritance With Equity Release
What Are the Little-Known Truths About Equity Release?
One little-known truth about equity release is that it is not a one-size-fits-all solution.
The amount you can release depends on factors like your age, property value, and health condition.
Furthermore, equity release can potentially reduce your estate’s value and may affect your eligibility for means-tested benefits.
Another fact often overlooked is that interest can accumulate over time, significantly increasing the amount owed if you opt for a lifetime mortgage.
It is essential to consider this, along with other financial commitments, before deciding whether equity release is right for you.
What Is the Truth About Repayment Options?
The truth about repayment options is that you can wait to have your equity release repaid from the sale of your home when you pass away or go to long-term care.
Alternatively:
You can choose to repay the monthly interest to prevent it from compounding, plus a capped percentage of your loan amount.
What Are the Hidden Truths About Equity Release?
A hidden truth about equity release is that it is a lifetime commitment.
Once you secure a lifetime mortgage, it is typically only repayable when you move into long-term care or pass away.
Also, early repayment charges can be substantial if you change your mind or your situation changes.
Secondly, whilst the ‘no negative equity’ guarantee protects you from owing more than your home’s worth, it does not necessarily protect you from falling house prices.
If property values decrease, you may end up with less equity remaining than you anticipated.
This offers a level of consumer protection, including the ‘no negative equity’ guarantee, ensuring that you will never owe more than the value of your home.
What Is Some Uncommon Information About Equity Release?
An uncommon piece of information about equity release is that some plans offer the ability to make interest repayments, effectively preventing the debt from growing.
What is more, you can choose between releasing equity as a lump sum or in smaller, more regular amounts.
This means that you will know exactly what the plan will cost you over the long term; however, some plans do offer variable rates.
Also, not all equity release providers are created equal.
When choosing a provider, consider factors beyond just the interest rate.
Check for flexibility features, like the ability to move your plan to a new home or make partial repayments.
In Conclusion
Understanding the lesser-known aspects of equity release is crucial for making informed decisions about this financial option.
By being aware of the risks involved, the potential impact on credit rating and inheritance tax, the limitations when downsizing, and the safeguards in place, individuals can confidently navigate the equity release landscape.
By shedding light on these four little-known truths about equity release, we aim to empower individuals to make informed choices that align with their financial goals and circumstances.
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