Have equity release myths been weighing on your mind as you plan for retirement?

Equity release is an increasingly popular option for homeowners looking to benefit from the value of their property.

Despite its growing use, there are still many misconceptions and myths surrounding the concept.

In this article, we’ll explore the top 12 myths about equity release, clarify the facts, and help you make an informed decision if you're considering this financial solution.

What Is Equity Release?

Equity release allows homeowners, typically those over the age of 55, to access the value tied up in their property.

This can be done either through a lifetime mortgage or a home reversion plan.

The most common form of equity release is a lifetime mortgage, which allows you to borrow money against your home while still living in it.

The loan, plus interest, is repaid when you move out or pass away.

Read On: Understanding Equity Release

Learning about the most common equity release myths can be a big help when it comes to sorting out your retirement options.

Myth #1: You Will Lose Ownership of Your Home

One of the most common myths is that by borrowing through equity release, you lose ownership of your home.

This is not true if you take out a lifetime mortgage.

With this kind of equity release, you remain the owner of the property, and the loan is only repaid when you move out, sell the property, or pass away.

However

If you opt for a home reversion plan, you will be selling a portion of your property to a provider, which means you will no longer fully own your home.

Myth #2: You Must Make Monthly Repayments

Another prevalent myth is that you must make monthly repayments on the loan.

In reality, most equity release plans do not require monthly repayments.

Instead, the loan amount and interest accumulate and are repaid when the property is sold.

Myth #3: Equity Release Is Only for People with Financial Problems

Equity release is often thought of as an option of last resort for those in financial hardship.

However, according to data published by FT Adviser in 2018, this is a misconception.¹

Many people use equity release to supplement their retirement income, fund home improvements, or enjoy a better quality of life without having to move.

Myth #4: You Will Have Nothing to Leave to Your Heirs

Many people worry that equity release will eat up the value of their property, leaving nothing to pass on to their heirs.

While it is true that a lifetime mortgage will need to be repaid from the sale of the property, any remaining funds are passed on to your beneficiaries.

More importantly, some plans will allow you to protect a portion of your home’s value for your heirs.

Myth #5: Equity Release Is Too Expensive

Some people believe that the costs of equity release are too high, especially with interest rates involved.

However, equity release plans can be tailored to meet individual needs and keep costs as low as possible.²

Options include receiving funds in smaller sums by using a drawdown facility, which lowers interest costs, and making penalty-free partial repayments to avoid the roll-up of interest.

Equity release interest rates are usually fixed for life, which means your rate won't be affected by base rate fluctuations and you'll always know how much you're being charged.

When it comes to costs, it's important to compare options and shop around to find the best deal.

Myth #6: You Can't Move to a New Property

A common myth is that once you release equity, you are stuck in your home. This is not the case.

New lifetime mortgage plans approved by the Equity Release Council allow borrowers to move to a new property and take their loan with them, provided the new home meets the lender’s criteria.³

Myth #7: You Can't Access More Equity in the Future

Some people think that once they've released equity, they won't be able to access additional funds later.

However, many plans allow you to take out more equity later on, either as a lump sum or in smaller, regular amounts.

This can provide flexibility in case of future needs.

Myth #8: Your Partner Will Have to Move Out If You Pass Away First

A common myth about equity release is that if one borrower passes away, the surviving homeowner must leave the property.

This is not true. With a joint lifetime mortgage, the loan is only repaid when the last surviving homeowner dies or moves into long-term care.

Until then, the remaining borrower retains the right to live in the home.

The Equity Release Council ensures that all approved plans include a security of tenure guarantee, meaning the surviving homeowner can stay in the property for life.⁴

Myth #9: Equity Release Is Unsafe & Unregulated

In reality, equity release is fully regulated by the Financial Conduct Authority (FCA), and providers must adhere to the standards set by the Equity Release Council.⁵

These regulations ensure consumer protection, including safeguards like the No Negative Equity guarantee, which prevents homeowners from owing more than their property eventually sells for.

Myth #10: Your Family Will Be Forced to Sell Your Home

Some people worry that if they use equity release, their family will be forced to sell the home when they pass away.

While it is true that a lifetime mortgage loan must be repaid upon your death or when you move into long-term care, this can be done by using other funds (if that is an option for your heirs).

However, as a home reversion plan entails the sale or partial sale of your home to set up, the same would not apply.

Myth #11: You Can't Take Out Equity Release If You Have an Existing Mortgage

This pervasive idea is most definitely a myth.

You can get equity release if you already have a mortgage, as long as you have enough equity available in your home to allow you to pay off your existing mortgage.

Once your equity release funds are released to your solicitor, they will use a portion of those funds to repay your mortgage before transferring the balance to you.

Myth #12: Equity Release Plans Are the Same for Everyone

Another myth is that all equity release plans are the same.

In reality, equity release schemes can vary greatly depending on your lender, the type of plan you choose, and your individual circumstances.

It’s important to work with a specialist to find a plan that suits your needs and goals.

Common Questions

Conclusion

Equity release offers a flexible way for homeowners to access the value of their property, but there are many myths surrounding it.

By understanding the facts, you can make an informed decision and choose a solution that fits your needs.

Whether you’re looking to enhance your retirement, fund home improvements, or simply enjoy more financial freedom, equity release can be a useful tool when approached with the right knowledge.

Always seek professional advice to ensure that the plan you choose is suitable for your personal circumstances, and to make sure you don't get sidetracked by any equity release myths.