Equity release has soared in popularity in recent years, yet many people still have questions over how the process works. A lifetime mortgage, the UK’s most popular form of equity release, means accessing a portion of your home’s wealth as a lump sum. This sum, plus the interest accrued, need only be repaid when you die or move into long-term care and your property is sold.
Myth 1 : I’ll end up owing more than my home is worth
Provided you take out an equity-release plan with a provider approved by the Equity Release Council, your plan will come with a no- negative-equity guarantee, which ensures you will never owe more than the value of your property when it is sold. In the unlikely event that your property sells for less than the amount of the loan, the remaining balance will be written off. Typically, once the loan has been repaid, any remaining funds will be paid to you or the beneficiaries named in your will.
Myth 2: I’ll have to make monthly repayments with a lifetime mortgage
There are no monthly payments to make with a lifetime mortgage – unless you choose to make them, of course. Some plans allow you to make optional, penalty-free repayments of up to 10% per year of the mortgage balance. If you choose not to do this, interest on the amount you’ve borrowed will roll up over time. This only has to be paid back when the property is sold, either when you pass away or move into long-term care. If you’ve taken out an equity-release plan as a couple, the plan will continue for as long as one of you remains in your home.
Myth 3: I’ll no longer own my property
Equity release doesn’t mean selling your home to the lender: you are simply borrowing against it, and you remain the owner. Unlike a conventional mortgage, a lifetime mortgage has no fixed end date, so the mortgage lasts for as long as you need it to. As many mortgage lenders restrict options for those in their 50s and 60s, this can be invaluable for older homeowners.
Myth 4: I can’t release equity from my home because I’ve still got a mortgage on it
Having a mortgage doesn’t mean you can’t release equity. In fact, using property wealth to clear an existing mortgage is one of the most popular uses of a lifetime mortgage. With a lifetime mortgage, you would receive cash in exchange for a first charge on your property to the equivalent amount and with this you could then repay the existing mortgage, all in the same legal transaction.
Myth 5: There won’t be anything left to leave my loved ones
Lifetime mortgages have become increasingly flexible in recent years, and there are now plenty of plans available which allow you to protect a portion of your equity for inheritance. If you don’t want your loved ones to have to wait until you die before receiving financial support from you, you could use equity release to provide them with an early inheritance. Bear in mind, however, that using a portion of your equity now means there will be less available to you later.
If you have any other questions regarding equity release feel free to contact us, we would be more than happy to help.
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