Lifetime mortgages and equity release products are an excellent solution for over 50’s to help unlock equity in your home, refinance existing mortgages, increase your income or help you purchase a new home. In this article, Later Life Lending Director, Darren Johncock, demystifies some of the question marks that surround these types of products.
Myth 1: “Lifetime mortgages are a last resort.”
Although many clients assume that lifetime mortgages are a last resort, that is simply not true. Lifetime mortgages offer increased flexibility for clients over 50 years of age, and rising property prices mean more clients are using the equity tied up in their property to fund a variety of later life needs. The rates and products are much more competitive than they used to be, with clients often pleasantly surprised at the rates offered in this part of the market.
Myth 2: “We can’t release money from our property because there’s an outstanding mortgage.”
Did you know that one of the more common reasons to secure a lifetime mortgage is to pay off an existing mortgage? Contrary to popular belief, lifetime mortgages can free up income previously used to service the mortgage. In particular, clients coming to the end of their mortgage terms realise they do not wish to sell and so will often refinance to a lifetime mortgage.
Myth 3: “Lifetime mortgages come with restrictions on reducing the outstanding debt.”
In March 2022, it was confirmed that all products that meet the Equity Release Council (ERC) standards have to offer the right to make penalty-free partial repayments. This ensures you can make partial repayments without early repayment charges on your loan if you want to. The total amount that can be repaid is usually up to a fixed amount each year, however some products offer fixed early repayment charges that only apply for a set time period. After that, there’s no additional charge.
Alternatively, some lifetime mortgage products will also give you the option to pay monthly interest or roll it up until the end of the term. Paying interest monthly will not reduce the total amount borrowed, but the debt will not increase as much as it would if you let the interest roll up over the life of the mortgage.
Myth 4: “We have to stay in the same property for the rest of our lives.”
With most lifetime mortgages you can still move home if you wanted to. You can transfer the loan to the new property providing it meets the lender’s terms and criteria. This is known as ‘porting’ the loan.
Myth 5: “A lifetime mortgage will result in me owing more than the value of my home.”
This is no longer true. In adhering to the Equity Release Council (which LDN Finance is a proud member) Statement of Principles, all members must now feature a ‘No Negative Equity Guarantee’. As a result, this guarantees you’ll never owe more than your home is worth once sold, even if this is less than the amount owed. This applies upon your death or move into permanent long-term care, but only applies when you meet the product’s terms and conditions.
Myth 6: “By committing to a lifetime mortgage, I’ll lose ownership and control of my home.”
Providing you meet the conditions of the lifetime mortgage, you’ll never lose ownership or control of your property; a lifetime mortgage works in the same way as a standard mortgage.
Myth 7: “I won’t be able to leave my property to my children as part of their inheritance.”
A lifetime mortgage is usually repaid by selling the property after you move into permanent long-term care or pass away. If the loan has been repaid from the sale of property, any money left over can go to your beneficiaries. Also, some lifetime mortgages may let you ringfence a portion of your home’s equity to ensure you can leave as an inheritance to your loved ones.
Myth 8: “By taking out a lifetime mortgage I’ll leave debt to my loved ones.”
Providing you abide by the terms and conditions, no debt will left to your estate. Also, you’ll never owe more than the value of your home once it’s sold upon your death or move into permanent long-term care.
Myth 9: “It’s unregulated and unsafe.”
Similar to most of the residential mortgage market, lifetime mortgages are regulated by the FCA. This ensures advisers adhere to a conduct of standards that keep clients safe and fairly treated throughout the advice process.
Additional consumer protection specifically for this market has also been in place since 1991 under Safe Home Income Plans (SHIP). This was later rebranded as the Equity Release Council (ERC) in 2012. LDN Finance are proud members of the ERC and take significant diligence in adhering to its high standards of conduct and practice.
Interested to learn more about lifetime mortgages and equity release solutions? View how we can help HERE, or contact us on 020 3903 9875.