It’s fair to say there are a lot of misunderstandings and misconceptions about releasing equity from your home. Hopefully, this article will help clarify the main concerns. Please read on.
The biggest concern is people think they will no longer own their home. If you took out a Home Reversion plan you would sell your home to the reversion company, either in full or in part. You would then stay as a beneficial owner in your own home for life. However, there are very few new home reversion plans sold these days.
The usual way of releasing the accumulated value from your home is with a lifetime mortgage. This is just like a conventional mortgage where the lender has a first legal charge on your home but you always own it. The biggest differences are that it’s not for a fixed term and there are no repayments expected!
People think they’ll end up owing more than the house is worth. In the unlikely event, the house is sold for less than the outstanding mortgage, the difference is written off. This is the protection provided by the Equity Release Council’s no negative equity guarantee so you can’t leave a debt to your beneficiaries.
It’s a common misconception that with a lifetime mortgage you have to make monthly payments. This is simply not true! However, you can choose to make ad-hoc payments if you want to. You can choose to make regular committed payments towards the accumulation of interest for as long as you have the mortgage, or until you decide not to make payments anymore. Your choice.
People wrongly think if they already have a mortgage on their home, they can’t release equity. Again, not true. So long as the planned release is sufficient to pay off the existing traditional mortgage in full, then it can be done. This is one of the biggest reasons people take out lifetime mortgages today. The amount that can be borrowed is dependent on the age of the youngest applicant and the value of the property.
The final misconception is there will never be anything left for beneficiaries. Most lifetime mortgages have flexibility such that you can guarantee a future percentage of the value for beneficiaries. However, this will reduce the amount you can borrow now.
The final point to make is that taking equity from your home could affect your ability to continue to claim or make future claims for means-tested benefits so always check first. Professional equity release specialists will always offer a software check on your entitlements.
All the terms and conditions of your recommended plan will be in the provided illustration or KFI document.
Check out our previous article here.