4 Little Known Truths About Equity Release

I have been helping clients understand equity release plans since 2016, and there are several truths about equity release that people need to learn.

1. There are multiple types of Equity Release plan

When people approach me to discuss equity release, they often have an idea about how plans work. However, people are generally unaware that there are multiple equity release plans.

Moreover, some drawbacks only relate to certain types of equity release and do not exist for other types.

The most common modern equity release plan is Lifetime Mortgages, which makes up over 99% of new equity release plans!

But why is this?

Lifetime mortgages work very similarly to residential mortgages. However, your income or credit score does not impact the amount of money you can raise. In fact, with lifetime mortgages, you do not have to make any payments while the plan runs if you do not wish to.

Lifetime mortgages also have fixed-for-life interest rates and have no set term - the loans can run for the rest of your life if you wish.

In my article discussing the different types of equity release, we learn about the pros and cons of all types of equity release and even some hybrid plans:

• Lifetime Mortgages
  • Lump sum plans
  • Drawdown plans
• Home Reversion Plans
• Shared Appreciation Mortgages
• Retirement Interest-Only Mortgages
• Older Borrower Mortgages

2. You don't lose your home (and can guarantee inheritance)

With lifetime mortgages, you retain full home ownership. Instead of selling your home (like many people fear), the equity release lender places a charge on your property, just like a residential mortgage.

You can repay the lifetime mortgage anytime and even move home in the future.

What's more, you can also guarantee an inheritance to your loved ones with equity release. You can do this by:

• Gifting them money now from your equity release funds as an early inheritance.
• Take a lifetime mortgage with a guaranteed inheritance feature, protecting a percentage of your home's future value to pass on to your loved ones.
• Never passing on any property debt with the no-negative equity guarantee - offered with all plans meeting the Equity Release Council standards.

This is just one of the reasons I will only recommend a lifetime mortgage that is Equity Release Council approved.

3. You can purchase with equity release (and move home in the future)

When looking for a new home, it often feels like the perfect home costs a little bit more than we can afford.

How great could it be if you could raise the little extra money you need?

Few people know that you can use equity release for exactly this - enabling you to purchase the home of your dreams!

By taking equity release to purchase a new home, you can even free up money to pay for any work you wish to complete on your new home.

This could be a great way to pay for decoration to meet your style.

Lifetime mortgages are portable

Suppose you have already taken an equity release plan and wish to move. In that case, you can either port your current plan or repay it with the sale proceeds of your existing home.

When considering moving, you should discuss your plans with an equity release advisor. They will be able to explore all your options and give you an idea if the new home you are trying to purchase will be acceptable to your equity release lender.

4. You can make penalty-free repayments from day 1 (and can get better interest rates for repaying)

All new lifetime mortgages meeting the Equity Release Council product standards must allow you to make voluntary penalty-free payments.

It's common to be able to repay up to 10% of the amount which you borrowed per year penalty-free. But some plans allow 11%, 12%, 20% and even up to 40%!

Getting a better interest rate by making repayments

If you commit to making payments by Direct Debit, you can achieve discounted interest rates on some equity release plans.

In December 2023, Just Retirement increased discounts available, up to 1% off your lifetime mortgage interest rate if you agree to service the interest by Direct Debit.

You can stop making payments at any time, and your home is not at risk of repossession if you cannot pay. You don't need permission from your lender either - you can cancel the Direct Debit when you need.

Once the Direct Debit stops, the discount will, too, and you will revert to the plan's standard interest rate.

This can be a great way to save money on your equity release plan while you can afford to make payments!

Summary

These are my four little-known truths about equity release:

1. There are multiple types of Equity Release plan
2. You don't lose your home (and can guarantee inheritance)
3. You can purchase with equity release (and move home in the future)
4. You can make penalty-free repayments from day 1 (and can get better interest rates for repaying)

But it's not an exhaustive list; we provide more helpful information in our free initial consultations.

You might also find my article discussing the catch with equity release a helpful next read.

While a qualified equity release advisor has written this guide, it is not intended to be used as financial nor legal advice and should not be relied upon.

To understand the full features and risks of an Equity Release plan, ask for a personalised illustration.