In this article
The catch with equity release is the roll-up of compound interest and how this can quickly erode the amount of your property you own.
This then slowly reduces the amount of your estate and the value of your inheritance to your family.
What is the Catch With Equity Release?
Explained in 4 min 32 seconds
Find more videos like this on MoneymanTV
The Pitfalls of Equity Release
With equity release, if you choose not to or are unable to pay a monthly payment, your interest will build up and will be in effect paid from your remaining equity. Every month, this get a bit more as you’ll be paying interest on your interest, then interest on your interest, on your interest etc.
A typical equity release product is a lifetime mortgage, this is recommended 99% of the time. With a lifetime mortgage, you’ll have the security of knowing that your home will always be owned by you, and you’ll have the right to live in your property until you die or go into a long-term care home, with optional monthly payments.
With a lifetime mortgage, when you die or enter a care home, your property will be sold, your lifetime mortgage plus any accrued interest will be repaid, and then the proceeds can be used to contribute towards your care or go to your family at the discretion of your will.
Many people perceive the catch with equity release to be the reduction of inheritance that your family will receive in the event you die.
Another catch with equity release is that they’re not designed to be a short-term lending solution, there are early repayment penalties with them. The penalties can range from 4-15 years depending on the provider and can be significant.
The catch with the home reversion plan type of equity release product, which is only recommended in less than 1% of cases, is that your home is sold, you lose ownership however keep the right to reside.
This is where taking independent advice is vital, if you suspect that your personal circumstances are going to change this will need to be factored into the advice and recommendation.
The Current Equity Release Market
Let me assure you that nowadays the market is good, there are some brilliant products available that provide flexibility and the ability to make payments.
Independent advice is the key to receiving good advice, we are one of a small number of firms in the UK that is independent. This means that we offer all products to our customers saving them time and money.
The mortgage lenders have been innovative in this area and many high street providers now offering later life lending products to release capital with a normal mortgage.
Independent Equity Release Mortgage Advice
There’s a lot that can go wrong and mistakes can be costly with equity release mortgages, therefore, receiving advice is important.
Our later life mortgage team will:
- Answer all your questions and consider alternative non-equity release products.
- Take in to account your current and future situation.
- Discuss your property type to see if it’s suitable for an equity release plan.
- Ensure the recommend the best product with the features required.
- Peace of mind that your application is being processed properly.
- Be there for you both through this applicant and beyond.
We only recommend equity release products that adhere to the Equity Release Councils standards giving you peace of mind and security.
