Equity Release misconceptions
1. I won't own my home anymore
A lifetime mortgage is a loan taken out against the value of your home. This means that your equity release provider doesn't buy any part of your property from you, so you retain full ownership of your house for as long as you live there
2. I won't be able to move house
Taking out a lifetime mortgage doesn't mean you have to commit to living in the same house for the rest of your life. It's possible to transfer your loan to your new home, you just need to ensure it meets the current lending criteria. If you decide you want to downsize, you may be required to pay back some of the loan depending on the value of your new property, and if you upsize, you may be able to borrow more.
3. I'll leave debts to my family
If the provider is a member of the Equity Release Council, they are required to offer a No Negative Equity Guarantee. This means that if the total loan amount is more than your home is worth when it is sold, your loved ones won’t be asked to pay back any money when you've died.
4. I won't be able to leave inheritance for my family
Choosing to take out a lifetime mortgage is an important decision, and so it is often a good idea to discuss your plans with your family. Releasing some of the equity in your home does restrict the amount of money your loved ones can inherit. However, you can protect a percentage of this equity so you can be assured your family are taken care of after you die. You can also talk to an adviser about a product which allows you to make regular or ad-hoc payments throughout the life of the loan. By doing this, you can reduce or eliminate the impact of interest roll-up.
5. Interest roll-up will eat into the equity of my property
With some equity release products interest is added on to your loan, therefore increasing the amount of money that will have to be paid back. However, you can manage the impact of interest roll-up by choosing a product that requires you to pay the interest on a monthly basis, much like you would with a typical mortgage. Alternatively, there are some products that allow you to pay back a percentage of the loan on an ad-hoc basis, as and when you decide you want to. Your financial adviser will advise which kind of product you are most suited to.
6. Equity release is unsafe
The equity release industry is regulated by the FCA. Lifetime mortgages can only be sold through financial advisers who hold the correct qualifications and must take into account your individual circumstances to ensure you receive the right product. Alongside this, the Equity Release Council (the sector’s trade body) has put in place a number of safeguards to ensure that companies providing equity release products offer fair and reliable options for their customers.
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