You might have heard about 'releasing money from your home' through equity release. But what do you actually know about it? There are a whole load of ifs, buts and uncertainties around this type of financial arrangement. So we’re here to help you pull apart the facts from the fiction – and bust those myths you might have heard.
First things first – the type of equity release we offer is a lifetime mortgage, but what is that?
A little look at lifetime mortgages
A lifetime mortgage is a long-term loan secured on your home which allows you to release some tax-free money from the value of your home after you turn 55. You’ll carry on living in your home, and still own every square inch. The loan and interest is usually repaid from the sale of your home once you (and your partner, for joint lifetime mortgages) pass away or need long term care, subject to our terms and conditions.
The myths vs the reality
Now let's take a look at some of those myths in relation to our lifetime mortgage and explain the reality behind each one.
You’ll be leaving your loved ones with nothing
The first myth for us to bust. The loan and interest can be repaid by any means, but this is normally by the sale of the home. As long as your home's sold for the best price it can reasonably get, anything that's left after the loan and interest have been paid will go to your loved ones.
It's true that they won't get as much in inheritance had you left your entire home to them in your will. But when you apply for a lifetime mortgage, you can tell us if you want to safeguard a percentage of the sale price to go to your estate. This is known as an inheritance guarantee. Find out how the inheritance guarantee works by calling 0800 092 7903.
It’s worth noting that if you choose to do this, you won’t be able to borrow as much. That’s because the loan is based on your home’s value without the percentage you’ve asked for as an inheritance guarantee. The minimum you can borrow is £15,000.
You’ll need to repay more than your home’s worth
Years ago, this may have been the case with some equity release products. But thanks to our no negative equity guarantee, neither your family nor your estate will need to pay back more than your home’s sold for, as long as it’s sold for the best price reasonably possible.
We’re also one of the only providers to offer a unique interest rate tailored to your situation. This rate stays the same for as long as you have your lifetime mortgage, so you’ll know from day one what your interest will look like for the years ahead. If you decide to borrow again after your initial loan then we'll set a new interest rate for each amount you take out, so your initial lump sum and any later withdrawals will have their own rate.
That’s not true. We’re a long-standing member of the Equity Release Council, a trade body that helps protect people taking out equity release.
We’re also one of the most established equity release lenders in the UK – having provided lifetime mortgages to over 270,000 homeowners since 1998.
You need to get financial and legal advice to be able to get a lifetime mortgage. This is required to ensure you're making an informed decision.
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 take it out together. With 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.
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 our lending criteria at the time you apply to move.
If your new home doesn't meet our lending criteria, you won't be able to transfer your lifetime mortgage. This will mean you'll need to pay off the outstanding loan and interest in full – and you may also need to pay an early repayment charge. But if your property is eligible for downsizing protection, you won't need to pay the early repayment charge. This feature is only available on lifetime mortgages applied for on or after 8 April 2019 and you need to have held your plan for three or more years.
Releasing money from your home is a last resort
The reality is that you might consider equity release for any number of different reasons. It could 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.
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.
With a lifetime mortgage, you can use your home to fund what's important to you.
A better understanding means better decision making
Now we’ve quashed the rumours, you have a greater understanding of what choosing a lifetime mortgage actually means and its impact on you and your loved ones. And you can make a more educated decision about whether it’s right for you.
Before you decide
Deciding whether to take a lifetime mortgage is a big decision. It’s a good idea to speak to your family about your plans. It may affect them too, especially if it’ll impact their inheritance. It may also have a tax impact and affect whether you’re still eligible for welfare benefits.
When you get in touch with us, we’ll ask a few eligibility questions before passing you to an equity release adviser. They’ll give you personalised advice on our lifetime mortgage. They’ll also consider other options which are open to you and whether equity release is right for you. If you decide to go ahead, you’ll also need to take legal advice.