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Discover the 4 little known truths of equity release

Article | Apr 2024

If you're a homeowner over the age of 55, and have a need for some tax-free cash, then equity release could be the solution that you're looking for.

With a Lifetime Mortgage, the most popular equity release product, you could release tax-free cash and enjoy a variety of benefits. However, we know that equity release hasn't had the best reputation historically, and you might be concerned with what you have heard.

Responsible Life is here to bust the equity release myths and help you to get to know the truth.

Myth #1: I can't leave my children an inheritance and will leave debt behind

The idea of what you will be leaving behind is a valid concern for many homeowners, and it is true that releasing equity from your home will reduce the value of your estate.

Should you release equity with a Lifetime Mortgage, however, you will benefit from a variety of safeguards and features designed to help you achieve your goal of leaving an inheritance.

  • Feature 1: No-negative-equity guarantee. With this, you are guaranteed that the amount you owe will never exceed the market value of your home, so your loved ones won't inherit Lifetime Mortgage debt.
  • Feature 2: Inheritance guarantees. Some products may allow you to "ring-fence" a portion of your home's value as a guaranteed inheritance. This will reduce the pool of equity that you can release but give you peace of mind if leaving an inheritance is a key goal.
  • Feature 3: Fixed-for-life interest rates. The products that we offer come with an interest rate that is fixed for life. Because of this, you will know exactly how the amount you have borrowed will grow over your lifetime and can plan accordingly.
  • Feature 4: Optional payments. With all new Lifetime Mortgages, you are guaranteed the right to make optional payments, often up to 10% of the mortgage value per year. This can help you to control how much you owe.

So, with a combination of the features above, you might be able to guarantee an inheritance for your loved ones.

Truth #1:

While an equity release plan will reduce the value of your estate, it won't prevent you from leaving an inheritance behind and will never result in Lifetime Mortgage debt being passed onto your loved ones.

Myth #2: I will be selling my home

Whether or not you sell all (or part) of your home will depend on the type of equity release product that you choose. At Responsible Life, we only offer products that guarantee that you remain the homeowner.

With a Lifetime Mortgage, the product that we offer, you will only be borrowing from the value of your home, like you would with any other mortgage.

However, you might have some obligations to the lender under the terms of your mortgage. This will require you to keep the home in a reasonable state and carry out repairs when necessary. There might also be restrictions on certain changes to the property, where the lender will need to grant their permission first.

Truth #2:

With a Lifetime Mortgage, you are not selling any of your home to a lender. Instead, you are borrowing a sum of money from your home which is only repaid when the last homeowner passes away or enters long-term care.

Myth #3: I can't release equity if I have a mortgage

Many homeowners over the age of 55 are likely to still have an outstanding mortgage, so it’s natural to consider whether this means you can’t release equity.

The truth is, having an existing mortgage does not mean that you can’t release equity. As long as your current mortgage is cleared when you complete an equity release plan, you will still be eligible.

In fact, many homeowners consider equity release as a way to clear their current mortgage. This could help you to swap required payments for ones that are completely optional, empowering you to live within your budget and plan to reduce or stop making them in the future.

Truth #3:

Having an existing mortgage does not mean that you cannot release equity. Instead, you could consider equity release as a method to pay off your current mortgage.

Myth #4: I can't move home anymore

We understand that it can be a little daunting, considering equity release now when your circumstances might change in the future.

Well, that’s why we only offer Lifetime Mortgages from lenders that are members of the Equity Release Council. This means that you are guaranteed the right to move home in the future, and take your Lifetime Mortgage with you, subject to the lender’s criteria.

There are also options available to homeowners that might later choose to downsize and repay the Lifetime Mortgage. We offer access to products with fixed and defined early repayment charges, so you will know from the outset how much it might cost to repay in the future.

Some products might also allow repayment of the loan early, without early repayment charges, should you choose to downsize in the event of one of the borrowers either passing away or entering into long-term care.

Truth #4:

Releasing equity with a Lifetime Mortgage does not mean that you can never move again. You are guaranteed the right to move home with your Lifetime Mortgage, subject to your lender’s criteria.

What other truths should you know?

Releasing equity may affect your entitlement to means-tested benefits, so it is important to consider both your short-term and long-term needs. That’s where our expert team of qualified advisers comes in.

They are available to offer a free initial consultation, learning more about your personal circumstances and helping you to discover if equity release is the right choice for you.

Take the next step to uncovering the truth of equity release

To discover more on how equity release could help you, use our free online calculator today. It will show you an estimate of the amount that you could release.

You could also schedule a call to speak with our UK-based Information Team. They can answer your questions and help to arrange an appointment with your local adviser.

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