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 true, 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, 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. Interest is added to the balance rather than collected as a monthly payment.
Is equity release a good idea for me?
If you need to pay off an old mortgage or meet other obligations, it could be an excellent idea.
Why Should I Still Consider Equity Release, Given the Pitfalls?
It could be ideal if it lets you stay at home.
Despite the Pitfalls, why is 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 interest rates can look like a horror story to some people. Still, your equity release adviser may tell you you can make monthly repayments to keep the equity release mortgage balance down.
What are the pros and cons of equity release?
Many people know that releasing equity means paying interest on the cash lump sum, but because some people need the money to pay off an old mortgage, this is a major pro. The con is that if house prices don’t go up, the equity release balance will consume more and more of your home’s value.
Will a new equity release scandal emerge?
It’s unlikely, but a mis-selling scandal similar to PPI a few years ago could occur. Early repayment charges may also become 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 must be sure you have received 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.
What if I am happy making monthly repayments?
You can get an equity release mortgage to make monthly payments without penalty.