Common Myths.
Equity release has had a lot of bad press in the past, and I am always amazed by the untruths, inaccuracies and misleading information put about by people on social media. One thing to clarify straight away is that Equity Release is not a product, it’s a process that allows you to release value or equity from your home. There are two ways to achieve this, either with a Home Reversion scheme, the old fashioned way, or the modern method is with a Lifetime Mortgage.
Historically, if you took out a Home Reversion Plan, you would sell your house to the reversion company, either in full or in part. You would then stay as a beneficial owner in your own home for life. Things have moved on a long way since these plans were used and there are very few new Reversion Plans written these days. They’ve fallen out of favour as they are not flexible.
Myth 1. The modern way of releasing equity in your home is with a Lifetime Mortgage. This is just like a conventional mortgage where the lender has a first legal charge on your home. I see statements like “legalised theft” and “a fool and his home is soon parted” Let’s be ABSOLUTELY clear. With a Lifetime Mortgage, you always own your house, exactly the same as with an Earlier Life Mortgage. The biggest differences between an Earlier Life Mortgage and a Lifetime Mortgage are there’s no fixed term and no repayments are required or expected!
Myth 2. People think they’ll end up owing more than the house is worth. Not true. If the house is sold for less than the outstanding mortgage, but at a fair market price, the difference is written off. This is because of the protection provided by the Equity Release Council’s No Negative Equity Guarantee. You won’t leave a debt to your beneficiaries.
Myth 3. I’ve heard it said that the debt on the house gets passed on to your family or beneficiaries. Again not true. Because of the No Negative Equity Guarantee, this won’t happen.
Myth 4. I’ve seen statements like “all they want is your house”. Again no. After the second death occurs, or the second partner goes into permanent long term care, the executor of the estate will arrange the sale of the property. All the lender wants is the amount outstanding. Any surplus is always passed back to the estate for distribution as per the terms of the will. Again with modern plans, you can protect or ring-fence part of the value of your home for your beneficiaries from the outset.
Myth 5. It’s a common misconception that with a lifetime mortgage you have to make monthly payments. This is simply not true! There are no expectations for payments to be made and no one will ever chase you to make payments. However, you can choose to make ad-hoc payments if you want to, or you can choose to make regular committed interest payments for as long as you have the mortgage, or until you decide to stop, It’s your choice. However, making any sort of payment will slow down the effects of compound interest.
Myth 6. People wrongly think if they’ve already got a mortgage, they can’t release equity. Again, not true. So long as the planned release is sufficient to pay off the existing traditional mortgage in full, then it can be done. This is an increasingly common use for Lifetime Mortgages.
If there’s a shortfall, but you have access to additional capital to make up the difference that’s also fine. The amount that can be borrowed is solely dependant on the value of the property and the age of the youngest applicant.
Myth 7. My home can be repossessed. The social media chat I see is something like “they want your home” and “you have to make payments.” A Lifetime Mortgage that’s approved by the Equity Release Council (ERC) provides a number of guarantees. One of which is Tenure for Life. This means that the property is not and never will be at risk of repossession as there are no contractual repayments needed or expected during the borrower’s lifetime. However, the Borrower is responsible for keeping the building insured and maintained to a reasonable standard throughout the term, just like with an Earlier Life Mortgage.
The final point to make is that taking equity from your home could affect your ability to continue to claim or make future claims for means-tested benefits, so always check first. Professional Equity Release advisers will always offer a software check on your entitlements without approaching the Department of Work and Pensions (DWP).
All the terms and conditions, facts and figures of your recommended plan will be in the illustration or KFI document provided by the lender and discussed with you by your Equity Release Specialist.