I am sure that everyone has heard ‘horror’ stories about equity release. The newspapers thrive on hearing about people who may have had a bad experience.
So, I thought I would dispel these myths for you.
Hopefully, by the time you have finished reading you will have a better understanding of equity release.
The type of equity release I am going to talk about today is called a Lifetime Mortgage. The other type of equity release is called Home Reversion which I will talk about another time.
Myth 1 – I won’t own my home anymore.
Yes, you will. The lender lets you borrow money from them, and they put a ‘charge’ on your property in the same way a normal mortgage lender does. You still maintain ownership of the property.
Myth 2 – It’s not regulated.
Equity release mortgages are regulated by the Financial Conduct Authority (FCA). All lenders and advisers must follow the regulations and be qualified to sell equity release. Also, the Equity Release Council is a professional body that exists to ensure that all lenders and advisers that are their members follow their Statement of Principles. These principles have been made to protect you, the consumer and makes sure you receive the correct advice.
Myth 3 – It’s expensive.
Like all borrowing at the moment, the interest rates available for lifetime mortgages are the cheapest they have ever been. Not only that, but the interest rate is fixed for the life of the loan. The rate will NEVER change.
Myth 4 – I won’t be able to leave my loved ones an inheritance.
There are plans available that allow you to safeguard a percentage of your equity to ensure you still can leave an inheritance when you die. This may affect the amount you can borrow at the outset though and, the cost of the loan. This is something that is explained during our appointment.
Myth 5 – The debt will increase.
Unlike other types of mortgage, when you take out an equity release mortgage you have choices on how you want to pay back the loan. You can opt to make the full monthly interest payment that will fall due and then the debt won’t increase, provided you make the payments on time for the life of the loan. You can also opt to make ‘Ad hoc’ payments as and when which will reduce the rate at which the debt will increase. If you opt to have a ‘roll-up’ mortgage then this means you won’t make any payments to the loan at all and the interest being charged will be added to the loan and the debt outstanding will increase. During our appointment, I can show you the effect this will have on the loan and your equity, so you can then make an informed decision as to whether this option is the right one for you. If you do choose this option, don’t worry, the ‘no negative equity’ rule exists where, should there end up being more debt than equity the lender will ‘write off’ this part of the debt.
I hope this has helped you understand equity release a bit better, if you would like a further explanation, please contact Hayley at Blackberry Mortgage Services on 01245 806119 or go to www.blackberry-mortgage-services.co.uk/equity-release.
Equity Release may impact the size of your estate and it could affect your
entitlement to current and future means-tested benefits.