So you think you know everything about equity release?
I’ll lose my home, the debt doubles every 10 years, it’s a scam, my family will be left owing money after I die. These are some of the things that people say about equity release, but where do these thoughts originate and are they true?
Equity release is a finance product that allows homeowners aged 55 and over to release some of the equity that they have tied up in their home. The money you release is tax-free and in the case of a lifetime mortgage, the most popular form of equity release, it is a loan taken against your home.
Average equity release interest rates are currently 3.95% and these low rates can be secured for life, whilst a large range of plan options means more choice in whether or not you make repayments. You can also choose to access your money as a lump sum or smaller amounts as and when you need it.
These days the equity release sector is regulated by The Financial Conduct Authority and has an industry body, The Equity Release Council, who provide certain guarantees for lifetime mortgage plans that meet their standards, such as;
- All plans come with a no negative equity guarantee, meaning you and your estate can never be left owing more than your house is worth.
- Interest rates must be fixed or, if they are variable, there must be a “cap” (upper limit) which is fixed for the life of the loan.
- You have the right to remain in your property for life or until you need to move into long-term care.
You can borrow anything between £10,000 up to a maximum of 55% of your property value. The exact amount that you can borrow will be determined by the value of your home and the age of the youngest homeowner. The money that you borrow, plus the interest, is repaid when you die or go into long term care.
Historically, equity release received a poor reputation as it was unregulated and plans had no flexibility. Coupled with high interest rates this meant that the amount borrowed originally could spiral extremely quickly. It’s these historic high rates and ridged plans that generate the negative backlash surrounding equity release. But there are ways to help those people on historic plans. Age Partnership can review any equity release loan older than one year, and there may be an option to move to a lower rate, with a lower cost of borrowing, providing they qualify for the latest plan developments.
Thankfully these days equity release is a different product than it was even 5 or 10 years ago. Now there are more than 400 of different plan options for a range of different circumstances. It’s your choice whether or not you make repayments. And with an interest only lifetime mortgage you are safe in the knowledge that your home cannot be repossessed as a result of you missing any monthly repayments.
The contents of this article are for reference purposes only and do not constitute financial or legal advice. Independent financial or legal advice should be sought in relation to any specific matter. Articles are published by us without any knowledge or notice of the circumstances in which you or anyone else may use or rely on articles or any copy of the information, guidance or documents obtained from articles. We operate and publish articles without undertaking or accepting any duty of care or responsibility for articles or their contents, services or facilities. You undertake to rely on them entirely at your own risk, and without recourse to us. No assurance of the quality of articles is given or undertaken (whether as to the accuracy, completeness, fitness for any purpose, conformance to any description or sample, or otherwise), or as to the timeliness of the publication.
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