Sorting Fact from Fiction: Unveiling the Reality of Equity Release with First Choice Financial Services
For homeowners aged 55 or older, who seek additional funds to supplement their income, equity release offers a compelling solution. Equity release plans grant you access to a portion of your property's value, available as either a lump-sum payment or regular cash disbursements.
Despite its merits, equity release often shrouds itself in misconceptions, leaving individuals perplexed when considering this financial option. In this article, we'll debunk four common myths surrounding equity release, helping you separate fact from fiction.
Myth #1: Nothing Left for Your Heirs
A prevalent concern revolves around the potential impact on your children's inheritance. Equity release involves borrowing against your home's value through a lifetime mortgage or selling a portion of your property to a provider via a home reversion plan.
Lifetime Mortgage: Under this equity release type, you retain ownership of your property. Upon its sale after your demise, any remaining funds, once the loan and interest are settled, can be passed on to your family. It's important to note that the longer the period between acquiring a lifetime mortgage and repayment, the more interest accrues. Some lifetime mortgage products even permit monthly interest payments, reducing the final repayment amount.
Home Reversion Plan: With this plan, you sell a portion of your property's market value (e.g., 40%) to raise money. At the plan's conclusion, the provider is entitled to their share (e.g., 40%) of your property's current value. This ensures that your family can inherit 60% of your property's value, minus any sales costs or inheritance tax. (we do not offer Home Reversion Plans)
The fear often centers on the possibility of the cost exceeding the property's value at the end of the plan, necessitating additional funds from the estate or elsewhere. To avoid this scenario, ensure your chosen provider is a member of the Equity Release Council and authorized by the Financial Conduct Authority. Approved providers offer a 'no negative equity guarantee,' assuring that the amount owed will never surpass the property's value, regardless of how long interest accrues.
Truth about Equity Release #1: Equity release reduces the inheritance amount for your children but won't leave you or your heirs in debt to the provider.
Myth #2: Provider Ownership
Some believe that the lifetime mortgage provider gains ownership of their entire property. In reality, equity release functions as a loan secured against your property's value, similar to a standard mortgage. Unlike a standard mortgage with monthly capital and interest payments, a lifetime mortgage's capital and interest accumulate, becoming payable upon your demise or permanent long-term care entry.
Providers of lifetime mortgages never actually own their customers' homes. They may impose certain limits or restrictions on property alterations, but they hold no right to the property itself. Surviving family members can repay the lifetime mortgage from other estate assets, preventing a forced home sale.
Truth about Equity Release #2: A lifetime mortgage is a loan secured against your property's value, repayable only upon your demise or entry into permanent long-term care. Repayment doesn't have to come from property sale, though it's often the funding method.
Myth #3: Home Loss upon Care Home Entry
The misconception of losing one's home upon entering a care home leads to unease. Equity release plans can terminate if you move permanently into residential care, with borrowed funds repaid to the lender. However, joint equity release plans continue as long as one person remains in the home, even if the other partner requires care or passes away.
Truth about Equity Release #3: Joint equity release plans persist until the last owner dies or enters permanent long-term care.
Myth #4: Equity Release Provides Only Lump Sums
While some opt for a lump-sum payment for home improvements or inheritance, many prefer to supplement their pension income. A drawdown lifetime mortgage offers flexibility, enabling smaller, regular disbursements. Interest accumulates only when funds are released, typically slower than with a lump-sum lifetime mortgage.
Truth about Equity Release #4: Accessing home equity can be flexible, varying between providers.
For a deeper understanding of equity release and its implications, reach out to First Choice Financial Services. Our advisory service ensures you grasp all the details before deciding if equity release aligns with your financial goals. Full comprehension is vital before proceeding with equity release.
Comments