Equity Release myth buster
You may have heard of equity release but you’re not sure what it is and if it’s right for you. Andrew Morris, Senior Equity Release Advisor at leading broker Age Partnership, dispels some common equity release myths to give you an overview of what’s involved. Equity release is expensive
Equity release rates may be more expensive than a traditional mortgage, but it is worth remembering that this product can only be used by borrowers aged 55 and over, when it can be harder to access a standard home loan.
It’s also important to note that equity release rates are fixed for life and currently some of the lowest we’ve seen, saving you more than the same plan would have previously.
In the first half of 2021 people who took out an equity release plan through Age Partnership secured an average rate of 3.26% compared to 6.06% five years ago.
The rates may also work out cheaper and the product could be more efficient than alternative sources, such as a RIO mortgage, depending on what you are using the money for. For example, the average cost of a residential care home in the UK in 2020 was £34,944 a year, according to Payingforcare.org, rising to £48,720 when nursing care was included.
This would need to be paid on a weekly or monthly basis but if you have requirements that can be met with in-home care you could instead use equity release to access cash locked up in your home.
The loan, plus accrued interest, then only needs to be repaid once you move into care or by your estate once you pass away.
I could end up paying back more than the property is worth
All plans which meet Equity Release Council (ERC) product standards, come with a no negative equity guarantee, which means when your property is sold, even if the amount left is not enough to repay the outstanding loan, neither you nor your estate will be liable to pay any more. With a lifetime mortgage, the most popular type of equity release, you always own your home, subject to terms and conditions, and have the right to live in it until you, or the last person on a joint plan, passes away or moves into long-term care.
I won’t have control over my property
There are two types of equity release; a home reversion plan and a lifetime mortgage, which is the most popular type of plan. A lifetime mortgage allows you to retain 100per cent home ownership, giving you full control. With this type of product you also have the option to take the money all at once or as and when you need it, this is called drawdown.
The benefit of drawdown is that you only pay interest on the money that you take out.
I won’t have any inheritance to pass on to my loved ones
One of the concerns people may have when considering equity release is how it will affect the inheritance they are able to leave when they pass on.
You can actually protect a portion of the equity in your property, this is known as an ‘inheritance protection guarantee’.
An advisor, such as Age Partnership, will tell you everything you need to know about how equity release will affect the amount of inheritance you can leave and if your entitlement to means-tested benefits could be affected now or in the future.
What it can be used for
Don’t forget that once you’ve repaid any standard mortgage, the money that you release is yours to spend. Equity release may involve a home reversion or a lifetime mortgage, which is secured against your property. There are no monthly repayments required as the money released, plus accrued interest, is repaid upon death or moving into long-term care. To understand the features and risks, ask for a personalised illustration.