You would be forgiven for thinking that releasing equity from your home is a risky business, as there are numerous myths floating around that may scare some homeowners. The truth about equity release however is that it’s a tightly regulated way of raising extra cash in later life – but it’s not for everyone.
The following 4 little known truths about equity release dispel some of those myths, helping you make a more informed decision on whether using the money from your property this way could be a good option for you.
1. You can leave an inheritance for family
As the loan and the interest are repaid by the sale of your home once you die or move into long term care, equity release will impact your family’s inheritance. Some equity release schemes give you the option to protect a percentage of your property, so you can release equity and guarantee your family will still receive an inheritance.
2. You can make repayments to reduce the loan
With a lifetime mortgage you don’t have to make monthly repayments as the loan is repaid from the sale of your property. However, if you want to reduce the size of the loan, there is flexibility to do so either on a monthly or adhoc basis. You just need to choose a plan that fits your requirements, which is why seeking specialist advice is so important.
3. You still have the flexibility to move
Any equity release company that is a member of the Equity Release Council must abide by their rules and safeguards, which include the right to move to another property. The only condition being that your provider is happy with the property you wish to move to.
Some plans also offer downsizing protection which allows you to pay off some of your loan without penalty if you move to a lower value property.
4. Your family won’t be left in debt
One of the stand out rules of the ERC’s safeguards is the ‘no negative equity’ guarantee, applicable to all of its members. To ensure there’s no repeat of the equity release horror stories of old, this guarantee means that neither your family or estate will be liable if there are insufficient funds to repay the loan once your home is sold.
You just need to make sure you avoid equity release companies that are not members of the Equity Release Council.
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Equity release myths busted
In addition to the 4 little known truths about equity release, there are also some common myths that add to the confusion. Here are just a few of the top equity release myths and the truth behind the misconception:
You have to make monthly repayments
You don’t have to make monthly repayments with equity release. Instead, the loan and the interest are repaid once you have died or moved into long-term care and your property is sold.
You no longer own your home
With a lifetime mortgage which is the most popular type of equity release, you continue to own 100% of your property. A loan is secured against your home which accrues interest and is repaid from the sale of your property once you have died or moved into residential care.
You can not release equity if you have a mortgage
You can release equity from your home if you have a mortgage but the outstanding loan would need to repaid with the money you release.
You can only release a one off payment
Equity release gives you the option to either take the money in one lump sum, or drawdown the cash as and when you need it. If you don’t need the cash in one go, a drawdown lifetime mortgage can save you money as you only pay interest on the money you have drawn down, not the funds held in reserve.
The truth about equity release
The truth about equity release is that chosen wisely, it can provide a way of increasing your retirement income in later life. However, there are downsides to equity release so you may want to consider the alternatives before deciding if it’s right for you.
Speaking to a specialist equity release adviser will help you understand if it’s something you could consider.
To understand more about how equity release really works, read our helpful guide.
