Some Common Misconceptions
Lifetime Mortgages are a ‘Last Resort’ Option
This is no longer true, and the increasing flexibility of lifetime mortgages reflects the growing popularity of using property wealth to meet later life needs. That said, there may still be other options open to you, and this is what we will explore together.
You must stay in the same property for the rest of your life.
With most lifetime mortgages, you can move home and transfer the loan to the new property providing it meets the lender’s terms and criteria (although you may be asked to make partial repayment).
It’s not possible to reduce the outstanding debt.
Some new products will allow you to make partial repayments without any early repayment charges. The amount that can be repaid is usually up to a fixed amount each year. Some products also offer fixed early repayment charges that only apply for a set time period, after this there’s no charge, while other products even give you the option to pay monthly interest.
Equity can’t be released if there’s an outstanding mortgage on your home.
You can apply for a lifetime mortgage providing you pay off your existing mortgage balance. This can be done either through the equity you release (or by another means), although you should be aware that using equity release to repay an existing mortgage could cost you more in the long-term.
You won’t be able to leave your property as an inheritance.
A lifetime mortgage is usually repaid by selling the property after you die, or move into permanent long-term care.
If the loan has been repaid from sale of property, any money left over can go to your beneficiaries.
Also, some products let you ringfence a portion of your home’s equity to leave as an inheritance for loved ones.
Equity Release is unsafe and unregulated.
Lifetime mortgages are regulated by the FCA. In addition, The Equity Release Council (ERC), established in 2012, is there to provide consumer protection, specifically for this market. ERC members must adhere to its standards of conduct and practice. Please visit: www.equityreleasecouncil.com
You’ll lose ownership and control of the property.
With lifetime mortgages, you’re the owner of your home for as long as you want to live there, very much the same as a regular mortgage, providing you meet the conditions of the lifetime mortgage.
You might end up owing more than the value of your home.
As part of adhering to the ERC Statement of Principles, all members (lenders) products must now feature a ‘No Negative Equity Guarantee’. This means you’ll never owe more than your home is worth once sold, even if this is less than the amount owed. This applies upon death or permanently moving into long term care, but, you must still meet the product’s terms and conditions.
• Taking out a lifetime mortgage will reduce the value of your estate
• Taking out a lifetime mortgage may effect your entitlement to state benefits
• Consolidating other debts could cost you more in the long term