Answering common equity release questions
If you are still wondering “is equity release safe?”, let us answer some of the most commonly asked questions surrounding equity release horror stories. We also look at how today’s stringent rules will protect you and your family.
Can I fall into negative equity?
One equity release horror story you may have heard surrounds the issue of negative equity. If you’re concerned that your equity release loan plus interest will grow to be more than what your home is worth, let us reassure you, it won’t.
All equity release plans approved by the Equity Release Council come with the guarantee that when your plan comes to an end, you will never owe more than the value of your home. The Council’s No Negative Equity Guarantee has been offering customers that reassurance and protection for many years.
Is compound interest something to worry about?
For many people a big advantage of equity release is that there are no regular repayments to make. Instead, the interest rolls up each month and adds to your total loan amount. Known as compound interest, it means interest accrues on interest.
The loan can grow quickly, but as the interest rate on lifetime mortgages is fixed for life, you’ll see a projection of what you can expect the loan to grow to before you apply for your plan. This way you can make an informed decision without any surprises in the future.
If you wish to, you can prevent escalating interest costs by making voluntary partial payments to service all or some of the interest each month. Alternatively, you could select an interest-only equity release plan which allows you to pay off the interest in full each month, so your loan never grows.
Will I have to pay early repayment charges if I want to pay off my loan early?
If you want to make partial payments to reduce your loan, then all Equity Release Council approved plans allow you to do this without penalty. Their code of conduct promises that “all customers taking out new plans which meet the Equity Release Council standards must have the right to make penalty free payments, subject to lending criteria.”
Typically, lifetime mortgage lenders tend to allow partial repayments of up to 10% a year penalty-free. You could clear your loan in as little as ten years in this way. Some lenders even offer no penalty for early repayment in certain scenarios.
Equity release is typically considered a lifelong commitment, so if you decide to pay off all your plan in full early then you are likely to face early repayment charges. In the event that your circumstances change and you choose to pay off your loan in full, you will need to request an early settlement amount. This will include any early repayment fees that you might incur.
This is one of the areas where it pays to talk to a qualified, FCA-authorised equity release adviser. They can explain early repayment charges in more detail and help you with your search for the most suitable plan. Call us on 0800 096 2215 or request a call back and we’ll arrange an appointment with one of our selected advisers.
Will the interest eat away my children’s inheritance?
We all want to help our family through the difficult times, which makes that last gift to them – their inheritance – vitally important to many of us. By its very nature, equity release will reduce the value of your estate and the amount of inheritance you leave. It is perhaps why some are still being warned about equity release scams today by their children and grandchildren. Many are naturally concerned about the effect a plan might have on their inheritance.
However, it is reassuring to know that for homeowners who want to gift part of their estate to their loved ones one day, there are ‘inheritance guarantees’ available. These allow you to ring-fence a percentage of your home’s value. So when your home is sold when you pass away or move into long-term care, you know that your family will receive an inheritance.