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Equity release can be a useful financial tool for homeowners, but it’s often surrounded by misconceptions.
Let’s clear up 10 common myths and shed light on the truths behind equity release.
Many people believe that taking out an equity release mortgage means handing over ownership of their home.
The truth is, with products like lifetime mortgages, you retain full ownership, and the lender only places a charge against the property.
With a lifetime mortgage, you remain the full owner of your home, this option allows you to access the value tied up in your property while keeping control over it.
In a home reversion plan you will lose part of full ownership, you sell part (or all) of your home to the provider but can stay there rent-free for life.
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A common concern is that equity release will wipe out any inheritance for your loved ones.
While the loan and interest are repaid from the sale of the home, many providers offer “inheritance protection,” allowing you to ring-fence a portion of your home’s value for your heirs.
Lifetime mortgages often come with inheritance protection, letting you safeguard a percentage of your property’s value for your family.
Your mortgage broker can help you find a plan that balances releasing equity and leaving something for your loved ones.
Also, you can make monthly payments towards the interest stopping or slowing the compound interest build up.
With a home reversion plan, you can sell a portion of your home, ensuring that the remainder stays intact for inheritance.
A mortgage broker like ourselves would highlight that this option ensures your beneficiaries receive a guaranteed share of the property’s value.
If you choose to sell all your home, then no inheritance will be available.
Although equity release can accumulate interest over time, especially if no payments are made, many providers now offer flexible options to manage this.
Some allow you to pay off the interest or even part of the capital to control the growth of your loan balance.
You can choose an interest-only lifetime mortgage, where you make regular interest payments to prevent the loan from growing.
An over 50s mortgage broker can guide you toward plans that suit your budget and help manage future costs.
Since a home reversion plan doesn’t involve borrowing, there’s no interest to accumulate.
Equity release can impact your eligibility for means-tested benefits like Pension Credit or Council Tax Reduction.
If you’re considering equity release, it’s essential to assess how it could affect your entitlement to such benefits.
With a lifetime mortgage, you can opt for smaller, regular drawdowns rather than a large lump sum, which might help you minimise the impact on benefits.
A mortgage broker can help you navigate this and structure the release in a way that works for you.
A home reversion plan that involves selling part of your home rather than receiving a lump sum could have less impact on certain benefits.
Once again, your mortgage broker will advise the best way forward on how this option fits into your broader financial circumstances.
Equity release is sometimes wrongly viewed as a “last resort.”
Many homeowners use it to supplement their retirement income, fund home improvements, or even help their children onto the property ladder.
Lifetime mortgages are flexible financial tools, useful for everything from retirement planning to paying for a dream holiday. Lifetime mortgages cab be a great option to enhance your lifestyle without selling your home.
Home reversion plans can be ideal for those who want to access a large amount of cash while still living rent-free in their home.
Contrary to popular belief, taking out equity release doesn’t mean you’re stuck in your current home.
Many plans allow you to move, provided the new property meets the lender’s criteria, offering flexibility even if you decide to relocate later in life.
With most lifetime mortgages, you can transfer the loan to a new home, if it meets the provider’s requirements.
Your lifetime mortgage advisor will help ensure that moving home is a smooth and manageable process.
Moving with a home reversion plan is also possible, but it may involve selling the reversionary interest in the original property.
A mortgage broker can explain the steps involved and help you through the transition if you choose to move.
Couples often worry that if one partner moves into long-term care, the other might lose the home.
In most cases, the remaining partner can continue living in the property until they either pass away or also enter care.
With a joint name lifetime mortgage, the loan is typically only repaid once the last surviving borrower passes away or enters long-term care.
A joint name home reversion plan also allows the remaining partner to stay in the home for life.
Security is usually guaranteed under the terms of the plan, regardless of any changes in care needs.
A common misconception is that equity release only provides a large lump sum.
In fact, many modern plans offer “drawdown” options, where you can take smaller amounts as needed, reducing the interest you accumulate on the full amount.
Drawdown lifetime mortgages allow you to release smaller amounts over time, helping you manage interest costs.
An equity release mortgage broker like ourselves will help you set up a drawdown plan that meets your financial needs and prevents unnecessary borrowing.
Home reversion plans tend to provide a larger upfront payment, but your mortgage broker can ensure it suits your financial situation and explain other options if flexibility is a priority.
Some believe equity release is unregulated and risky.
In fact, equity release is regulated by the Financial Conduct Authority (FCA).
Providers must adhere to the standards set by the Equity Release Council, ensuring consumer protection through safeguards like the “no negative equity” guarantee.
Lifetime mortgages are highly regulated products, and your mortgage broker will ensure that all providers comply with the rules designed to protect you.
This gives peace of mind when considering your options.
Home reversion plans are also regulated, meaning you can trust the safeguards in place.
Homeowners often think that having a mortgage means they can’t release equity, equity release can still be an option.
The funds released would typically need to be used to pay off the existing mortgage, and the remainder is available for other purposes.
With enough equity available a lifetime mortgage can be used to pay off any outstanding balance on your current mortgage, freeing up additional funds for other needs.
A mortgage broker will help you clear your existing mortgage while tapping into your property’s value.
Also, with a home reversion plan, the proceeds from the sale of all or part of your home can also be used to settle your existing mortgage if enough equity is available.
Equity release is a significant financial decision, and it’s important to consider all your options carefully.
While equity release products like lifetime mortgages and home reversion plans can be valuable tools, they may not always be the most suitable option.
There is other mortgage products specifically designed for those aged 60+, such as retirement interest-only (RIO) mortgages or traditional mortgages that run to age 90+, which could be more appropriate depending on your circumstances.
Speaking to a qualified independent mortgage broker who specialises in later-life lending is essential to ensuring you make the best decision for your future.
Mortgage brokers like ourselves can assess your financial situation holistically, exploring all available products, including equity release and other age-specific mortgages.
They’ll help you balance your immediate needs, such as accessing funds or clearing an existing mortgage, with longer-term considerations like inheritance, estate planning, and potential impacts on benefits.
By working with a broker, you gain access to expert advice tailored to your unique circumstances, ensuring that you choose the right product, whether it’s equity release or an alternative later-life mortgage.
We can offer peace of mind by ensuring that any product recommended is fully regulated, provides essential protections, and supports your financial goals throughout retirement.
We offer all our customers a free, no-obligation consultation to run through their mortgage options with a view to recommend the best way forward.
Also, don’t worry if your situation is more complicated, we’re here to solve your problems.
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UK Moneyman Limited is Registered in England, No. 6789312
Registered Address: 10 Consort Court, Hull, HU9 1PU.
Authorised and Regulated by the Financial Conduct Authority.
We are entered on the Financial Services Register No. 627742 at www.register.fca.org.uk
UK Moneyman Limited is Registered in England, No. 6789312
Registered Address: 10 Consort Court, Hull, HU9 1PU.
Authorised and Regulated by the Financial Conduct Authority.
We are entered on the Financial Services Register No. 627742 at www.register.fca.org.uk
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