Equity Release | Facts and Fiction

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A lot of people have heard the term equity release but, thanks to the wide range of myths that are out there, this doesn’t necessarily mean that they understand what equity release is really all about.

In this post we’re going to explore a few of the little known facts about equity release plans, and also debunk some widespread myths. This will ensure that you’re armed with all the information needed to make informed decisions about your financial situation.

FACT: Equity release lets you unlock some of the cash from your home

To start with the basics, equity release means unlocking a portion of the equity that is tied up in your home, generally to spend on emergency expenses, big living costs, or luxuries that you’ve always dreamt of affording – or anything you wish.

There are two different types of equity release plan available, but the most popular is the lifetime mortgage – and that’s the main thing we’ll be discussing throughout the rest of this article. With a lifetime mortgage there are typically no monthly repayments to make as the loan, plus roll up interest, is repaid when the plan comes to an end. This happens after you have passed away or moved into long-term care.

You can get a rough estimate of the amount you may be able to release by using an equity release calculator.

FICTION: Equity release will leave your kids in debt

We know that people worry about equity release potentially leaving their kids – or other beneficiaries – with debt after they are gone. With equity release plans that adhere to the Equity Release Council’s guidelines, however, you get a no negative equity guarantee.

This means that if the plan comes to an end and the sale of your home doesn’t generate enough money to cover the costs of the monies owed to the lender, the excess balance will be written off.

FACT: Equity release doesn’t necessarily mean you can’t move home

People also find the idea of being stuck in one property for the rest of their lives off-putting, understandably. Once again, though, people who ensure that their plan follows the Equity Release Council’s guidelines will be guaranteed the right to move home, providing the new property is suitable and approved by the provider.

FICTION: Equity release puts you at risk of losing your home

Equity release is sometimes used to release money to pay off an existing mortgage; what can put people off though, is the idea that one day the provider might come for their money, claiming the home.

Providing you meet with your plan terms and conditions, the Equity Release Council is on your side yet again, with another guarantee in place that means equity release customers have the right to stay in their home until they either pass away or move into long-term care.

Flexibility is key here: staying in your home and moving to a new location are both options that stay on the table.

FACT: You can do equity release and still own your own home

While one specific type of equity release plan does necessitate selling all or part of your home, this certainly isn’t true for every plan. Home reversion plans involve ownership of your home passing to the provider, however with lifetime mortgages you would remain the legal owner of your property, as the loan is secured against your home.

FICTION: Equity release is right for everyone

So far we’ve been looking at the positives – but it is important to note that equity release isn’t going to be the right option for everybody. Reliable equity release companies will be honest and upfront about the fact that equity release shouldn’t be jumped into without consideration.

Equity release will reduce the value of your estate and may affect your entitlement to means-tested benefits.

If you’re considering equity release it is recommended that you read ‘is it right for you?’ carefully.

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