Busting the 6 most common equity release myths
19 May 2021
Myth 1: If you release equity in your home, you‘ll no longer own your property
This is completely untrue of lifetime mortgages, with which you retain 100% ownership of your property. A lot of the confusion comes from Home Reversion Loans, where you do exchange part of the ownership of your house for the money you are borrowing. However, when releasing equity, you’re still either the sole owner or a joint owner and will be able to live in the property for as long as you want to – either until the end of your life or when you move into long-term care. This also means that you’ll be responsible for maintaining your property, as it remains in your name.
Additionally, provided you want to relocate to a property that meets your lender’s criteria, there are no difficulties involved with moving to a new house, should you want to in the future. Equity release is transferable so, should you find a suitable alternative home, you’ll still be able to relocate.
Myth 2: You’ll end up owing more money than your house is worth
All equity release plans that meet the Equity Release Council’s product standards are required to have a ‘no negative equity guarantee’. What this means is that you, or your estate, can never owe more to your lender than your house is worth when it’s sold. This means that, in the unlikely event that your house sells for less money than your existing balance with the lender, they will have to forgo any outstanding debt.
Myth 3: Equity release is expensive
The number of products available to equity release customers in recent years has kept on growing. This is great news for consumers as it means, with greater competition, lenders have had to reduce their interest rates to attract new customers. By working with an expert adviser, they’ll be able to help compare the hundreds of plans that are available and ensure that you get a deal that works best for your individual circumstances as well as assess which of the equity release plans that match your personal circumstances has the lowest available interest rates.
Moreover, some equity release plans allow you to pay off the interest as you go along, giving you the option to minimise how much you owe the lender. Again, this is something that an equity release adviser can help you with, as this option is only available on some plans.
Myth 4: Equity release plans are inflexible
With so many equity release products on the market, finding the right plan to work for your individual circumstances should not be a problem for an equity release specialist. Some of the different options available include:
- One-off payment or instalments: Many people believe that if they take out an equity release plan, they’ll have to receive all their money in one go. This isn’t the case: many plans will give you the option to receive your capital in smaller instalments, if you feel this will work better for you (this also helps to reduce the amount of debt that you will owe).
- Early repayments: Some plans may allow you to repay your money early, but it’s worth noting that there may be an early repayment fee. Again, this is something an adviser can help you to understand where applicable.
- Interest repayments: With some plans, you’ll be able to repay the interest on your loan as you go along, giving you the freedom to leave more to your loved ones.
Myth 5: You can’t release equity if your property is listed
Although there are restrictions on certain types of properties, a trained adviser will be able to work with you to try and find a lender if your property has certain characteristics. Having a listed house, or a house with a very large garden, can make it trickier to find a lender, but this doesn’t mean you can’t release equity full stop. With an expert who really understands the market, it’s still possible to get the right plan.
Myth 6: If you release equity, you won’t leave your family an inheritance
Releasing equity will reduce the amount of inheritance that you’ll leave your family, as the money from the sale of your house will be used to repay the loan you have with your lender. However, once this debt is repaid, you’re free to distribute your estate as you see fit.
Furthermore, some plans offer you the ability to protect some of the money that you want to leave your family. These include:
- Protected equity guarantee: Essentially, this allows you to protect a certain percentage of your house value. You can choose to protect as much or as little of your property as you wish, but it’s worth noting that the more you protect, the less a lender is likely to offer.
- Interest payment plans: By repaying some (or all) of the interest on your loan, you can reduce the amount of money your estate will owe to your lender.
- Living inheritance: Another option is starting to leave money to your family early through a ‘living inheritance’. This enables you to gift money to your family over time, rather than just giving them a single lump sum when you pass away.
Now you know the facts and fictions about equity release. However, it is a complicated areas, which is why it pays to talk to an independent, honest expert who will guide you through the different options and help you understand which may be appropriate for your personal circumstances.