What is the catch with equity release?

Question: what is the catch with equity release in the UK

To make the subject simple to understand, it’s probably right to put it in big letters:

An Equity Release Is A Loan That Has Interest

Some people are typing into search engines what the catch with equity release is, likely because they think it’s too good to be true.

They are right; it is too good to be accurate, but this does not mean it’s terrible for all UK homeowners.

The equity release pitfalls are how the interest mounts up, and you pay interest on the interest. With a lifetime mortgage, which is the most common form of equity release provider, the interest on the loan or mortgage is added to the amount you have borrowed.

The amount you owe will grow over time, and if you have a lifetime mortgage at a higher rate, the interest will pile up quite quickly. This is where you read about the equity release horror stories.

Martin Lewis wrote about the equity release pitfalls in October 2022. Lifetime mortgages can be pretty expensive to set up – it’s a big decision, so look out for offers like age partnership with lower fees. Get the right advice before taking out a lifetime mortgage.

What is Equity Release?

It is a mortgage secured by your home. The interest on the mortgage is added to the balance rather than collected as a monthly payment.

Is equity release a good idea for me?

If you are in a position where you have to pay off an old mortgage or you have other obligations you have to meet, it could be an excellent idea.

Why Should I Still Consider Equity Release, Given the Pitfalls?

It could be ideal for you as it would enable you to stay at home.

Despite the Pitfalls, Why’s Equity Release Popular?

People want it because they must find the money somehow, and an equity release plan in the form of a lifetime mortgage is considered one of the least harmful ways to achieve that goal.

Are the equity release horror stories true?

Some equity release plans with high equity release interest rates can look like a horror story in some people’s eyes. Still, your equity release adviser may tell you you can make monthly repayments to keep the equity release mortgage balance down.

What are the equity release pros and cons?

Many people know that releasing equity will result in them having to pay interest on the cash lump sum, but because some people need the money to pay off an old mortgage, this is a massive pro. The con is if house prices don’t go up, the equity release balance will consume more and more of the value of your home.

Will a new equity release scandal emerge?

It’s unlikely, but a misselling scandal similar to PPI a few years ago could occur. Some early repayment charges may be problematic for equity release companies in the future.

Is equity release a con?

No, it is strictly regulated, and it is not a con. It is simply compound interest with no monthly repayments. Your equity release provider has to be sure you have had the right advice before releasing equity.

What is an enhanced lifetime mortgage?

It is a higher loan-to-value equity release scheme for people with poor health problems.

What if I am happy making monthly repayments?

You can get an equity release mortgage to make monthly payments without penalty.

Things to consider:

Equity Release