Equity release is a financial package specifically designed to help people that are older than 55 years get access to money. In other words, it’s a loan where you use your home as collateral. The good thing is that you get a lump sum figure without having to sell your property. Financial institutions offer this package because they understand how difficult it can be for people that are almost retiring to get a loan.
However, there have been many myths surrounding equity release. The myths are actually hatched by people who don’t understand what equity release is all about. Such baseless myths have been causing most senior citizens to dread equity release, even when it’s crystal clear that it’s meant for their own good.
After reading this article, you will be able to know what you are getting yourself into when applying for equity release.
1. You will Lose your Home
This is further from the truth. When you get equity release, you are given money that’s equal to the market value of your property. However, this doesn’t necessarily mean that you are no longer the owner of the asset in question.
In fact, you are allowed to continue living in the house as long as you wish. However, you can’t sell the property. The institution that gave you the money waits until you are old enough to be admitted in a homecare facility or until you pass away to assume ownership of the asset. This means that the lender can’t kick you out of the house because the loan doesn’t have a specified repayment period.
2. All the Inheritance will be Used to Cover the Debt
Everyone wants to leave an inheritance for his dependants. However, most people have been brainwashed to believe that all their inheritance will be used to settle the debt that is left behind after passing on. This is simply a white lie.
After your demise, the financial institution sells the house, takes the amount owed to them and allows your beneficiaries to take the rest of the money without asking any questions. This is actually an element of Responsible Equity Release.
3. You Must First Clear your Mortgage Debt
This is another misleading argument that can deny you an opportunity to enjoy the fruits of the efforts that you made early in your life. Contrary to common belief, equity release is allocated to people that are unable to pay their mortgage loan.
After you have met all the qualifications the issuing bank or institution first pays the home loan balance and gives you the amount that is left and allows you to spend it the way you want. The good thing is that the money is not taxed by the government.
4. Your Debt can Exceed the Value of the Property
Most homeowners assume that they can given an amount that is more than the value of their property. This is not true.
When you get equity release, the issuing institution uses the home as collateral. When you pass away, the institution sells the home and uses the proceeds obtained from the transaction to pay the loan plus interest.
If by any chance the value of the property declines, meaning they have to dispose it at an amount that is less than what you owed them, the loan is written off. They can’t even ask your beneficiaries to cover the deficit. In fact, the institution that regulates equity release, Financial Conduct Authority (FCA) requires all equity lenders to abide by this rule.