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Understanding Equity Release Facts From Fiction. # Part 1

Mark Gregory

Last updated on 27 June 2023

For those homeowners aged 55 or over who are looking for an extra bit of income to cover bills, living expenses or perhaps trying to help support their loved ones, equity release has much to offer. With equity release you can gain access to value tied up in your property either through a lump sum or via regular payments.

However, many people are confused due to various misconceptions around equity release and at Equity Release Supermarket, we’re regularly asked about the same common myths. So, here we bust these myths to glean the real truths about equity release.

# Myth 1: My children will have nothing to inherit, and it may leave them in debt

Equity release impacts the value of the home you can leave to loved ones. Essentially equity release involves borrowing money against the value of your home via a Lifetime mortgage or Retirement Interest Only Mortgage (RIO), or selling a share of the property in return for a cash lump sum with a Home Reversion plan.

With a lifetime mortgage you are not committed to making any payments. However, all lifetime mortgages now have the facility to make voluntary payments of up to 10% of the original loan back to the lender. The advantage of voluntary payments is that they are not mandatory and therefore you can stop, pause, or restart them anytime in the future without penalty. The payments are not dependant on your income; or based on affordability like any conventional mortgage. However, if you do not make payments to service the interest to a lifetime mortgage, the interest charged by the lender will compound yearly and increase throughout your lifetime. With this type of mortgage, the cash plus interest is repaid usually when you pass away or move into long-term care.

Types of Plans:

• Lifetime Mortgage: You still own 100% of your property and plans come with a fixed rate of interest for the rest of your life – meaning the future balance will be known. With this type of agreement, once the property sold on your passing any money remaining once the loan and interest is cleared is left to your family. There is also a guarantee that the beneficiaries can never be left with any debt should the loan be higher than the property value at the end of the day. This is another of the conditions from the Equity Release Council called a ‘No Negative Equity Guarantee’.
• Home Reversion Plan: With this type of plan, you can choose to sell part or all of your home to raise the required tax-free funds. The lender guarantees a tenancy for life in the property, thus offering security of tenure. When the plan ends, the provider is entitled to the agreed percentage of the property’s sale value, meaning that your family are guaranteed to inherit the remaining percentage - minus any sales costs.

# Fact 1: Whilst taking out equity release will affect the amount of inheritance for your children, it will never render them in debt. They will be able to enjoy funds now with the benefit of you witnessing them doing so.

As can be seen there is much protection in place for homeowners over age 55 who are considering releasing equity from their main residence:

• Flexible voluntary payments – help control the future balance if needed
• No negative equity guarentee – help control the future balance if needed
• Fixed interest rate for life -security of knowing the future balance
• Ability to port the plan to another property - flexibility in moving property should circumstances change
• Repay the plan at any time - subject to potential early repayment charges lifetime mortgages can be repaid should better deals exist or you inherit money to repay the loan in full.

Equity release is an advised product and regulated by the FCA, which means that you need to speak to a financial adviser if you’re considering taking equity from your home. It’s important that you speak with a whole of market adviser who is independent of any specific lender to ensure you get the most suitable product possible. Equity Release Supermarket advisers are exactly that - independent and whole of market and our impartiality means we are not tied to any lender.

However, it's important to weigh the risks and benefits before making any decisions and consult with a financial adviser after your initial research.