Lifetime Mortgages: Fact or Fiction
Exploring the myths of equity release
You should always think carefully before securing a loan against your home and whilst there is a variety of information available, we felt it would be useful to take a closer look and speak to a local expert. We reached out to Adrian Foulks, founder of Advice for Later Life to find out more. Adrian is locally based in Bognor Regis and has 26 years of experience in equity release advice.
Adrian tells us about some of the facts and fiction surrounding lifetime mortgages in this article, “if you are still unsure, I will be happy to arrange an initial chat either by telephone or face to face without obligation. I’ll take my time to explain how everything works and any impacts on yourself and the family so that you can decide if it is the right option for you or not.”
Releasing money from your home is a last resort:
The reality – there are a number of reasons why you might be considering equity release. There may be a few things you want to do to spruce up your home. You may need a little help covering healthcare costs. Or you want to support loved ones who are trying to get on the property ladder themselves.
It could even be that you just want to make the most out of your retirement. You may have had to put more pennies away in your younger days to afford your home. And as property prices have risen considerably over the years, your home could be worth more than it once was. So you can now use that extra value in your home to top up your retirement fund.
With a lifetime mortgage, you can use your home to fund what’s important to you.
Equity release is too costly:
The equity release market has become increasingly competitive, which means there are now a larger number of products nudging interest rates down. For some standard lifetime mortgages interest is added to the loan, meaning debt can grow quickly. However, nowadays, if you want to manage the amount you owe, products offer the option to repay some, or all, of the interest. This means if you choose to pay all the interest, the interest won’t roll up over time and the original loan amount stays the same, as long as you maintain this interest payment.
I’ll have to make monthly payments with a lifetime mortgage:
There are no monthly payments to make with a lifetime mortgage – unless you choose to make them, of course. Some plans allow you to make optional, penalty-free repayments of up to 10% per year of the mortgage balance.
If you choose not to do this, interest on the amount you’ve borrowed will roll up over time. This only has to be paid back when the home is sold, either when you pass away or move into permanent long-term care. If you’ve taken out an equity release product as a couple, it will continue for as long as one of you remains in your home.
You’ll no longer own your property:
Whilst it’s a common misconception that equity release is a form of selling the home, this isn’t the case.
When a customer takes out a lifetime mortgage secured against their home, they are still the owner and have the right to live there until the end of their life, or until they decide to enter long-term care.
You will end up owing more than the value of your home:
When you take out equity release, you won’t end up owing more than the value of your home. Most lenders are members of the Equity Release Council so, any plan taken out with an approved provider, will come with a no-negative-equity guarantee.
This means you’ll never repay more than the value of your home when it is sold, even if that’s less than the amount owing.
Equity release means you won’t be able to leave your family an inheritance:
Last year we conducted some research which found that nearly half (46%) of older people in the UK provide financial support to younger family members, so we know that inheritance is important to customers.
One option is to use equity release to enjoy a ‘living inheritance’, where you gift your children or grandchildren an inheritance within your lifetime – this is one of the most popular reasons for taking equity release. Alternatively, there are now a range of lifetime mortgages which enable you to protect a portion of your equity to leave something to family or loved ones – known as inheritance protection.
You have to take all of your money in one go:
This might have been the case in the past but, nowadays, there is much greater flexibility as many modern lifetime mortgage products offer alternatives. For example, providers offer the option to ‘draw down’ your housing wealth in stages.
Taking the money in smaller sums, rather than in one go, also reduces the amount of unpaid interest added to the loan each month. There are also income lifetime mortgage products, that provide a steady income over a selected term.
I can’t release equity from my home because I’ve still got a mortgage on it:
Having a mortgage doesn’t mean you can’t release equity from your home. In fact, using property wealth to pay off an existing mortgage is one of the leading reasons for people to release equity.
With a lifetime mortgage, you can receive tax-free cash in exchange for a first charge against your home for the equivalent amount. The cash can then be used to repay the existing mortgage on your home, all in the same legal transaction. In this way, you now have a mortgage that will last for your lifetime without any worries over how you will make repayment. If you still want to make monthly payments, you can choose a suitable equity release product and do so. However, if your income drops after retirement, or if you simply don’t want to pay anymore, you could stop making payments and the interest will simply revert to rolling up instead, to be paid later by the sale of your home.
You can’t move:
Just because you’ve taken a lifetime mortgage, it certainly doesn’t mean you can’t move home. You may be able to transfer your loan to your new property – as long as it meets the lenders eligibility criteria.
Depending on your reasons for moving and if you’re eligible, you may not need to pay an early repayment charge either.
We’ll force you or your partner to move out when the other dies or goes into long-term care:
This isn’t the case. If you've taken out a joint lifetime mortgage, the loan will only need to be repaid to us when you've both passed away or need long-term care.
I have to pay tax on the money released with an equity release plan:
No. Cash released with an equity release plan is tax free and can be spent on many different things. Some of the most popular are helping out family, paying off an existing mortgage, repaying existing debts such as credit cards and helping to cover everyday bills. You should always think carefully before securing a loan against your home.
Equity release isn’t safe:
All of our plans meet the Equity Release Council’s standards which ensure equity release products are safe and reliable for consumers. We’re also regulated by the Financial Conduct Authority (FCA), which gives you additional security and protection.
If you have any questions about lifetime mortgages or equity release, speak to Adrian Foulks, the expert at Advice for Later Life.
Call Adrian on 01243 261945 or email him email@example.com