Equity release: how it works and how it is regulated
In these days of instantaneous, ether-fueled opinion, refuting a misconception that arose out of a lazy and poorly researched “story” or misreading of the facts can be a challenge.
Plus, like a stubborn, fast-growing garden weed, it doesn’t take long for a misunderstanding to take hold and spread its confused conclusions wherever it’s allowed.
The world of consumer finance is full of examples of myths that originate from a misinterpretation or simply misreading the facts. Let me give you a handful of examples.
Myth: You should avoid using credit cards at all costs because they are expensive.
Truth: If you are disciplined and pay off any outstanding balance on the card each month, you will not pay any interest. In addition, most card providers offer cardholders attractive rewards programs.
Myth: Your expenses will be much lower when you retire.
Truth: You do not receive a free pass for groceries, utilities, home and / or auto insurance when you finish your job. In addition, health care costs are likely to increase.
Myth: You can save for your retirement later and live for today.
Truth: Yes you can. But the longer you leave it, the less money you will have.
Myth: Money can not buy happiness.
Truth: Okay. It’s a bit controversial, but I suspect thousands of readers would be interested to see if they could handle a major lottery win without falling into deep despair.
It’s fair to say that one area of consumer credit that has suffered from repeated misinterpretations is the release of equity.
Despite its growing popularity among homeowners aged 55 and over, the equity release process is poorly understood by a surprisingly high number of people who comment on and write about it. As a result, the process has become mired in ambiguous comments and misinterpretations that can confuse consumers. Here are some examples.
Myth: The stock market is inherently risky and not properly regulated.
Truth: In fact, the industry is regulated by the Financial Conduct Authority (FCA), the UK’s financial watchdog whose role includes consumer protection. All stock release companies, providers and brokers, including advisers, must adhere to FCA standards. In addition, responsible lenders and brokers are also members of the Equity Release Council (ERC), the industry’s professional body, and must adhere to its strict code of practice.
Myth: If you free up the equity in your home, you can’t leave an inheritance.
Truth: There are many stock release products that allow you to leave a legacy. For example, applying an “estate guarantee” to your lifetime mortgage (the most popular equity release plan) ensures that you protect a percentage of the eventual sale value of your property for you or your clients. relatives. Alternatively, you can make regular or one-off repayments, thereby actively maintaining or reducing the outstanding loan balance.
Myth: Lifetime mortgages are expensive.
Truth: Interest rates have fallen dramatically in recent years, with many plans now offering interest rates below 3%, significantly lower than the standard variable rates charged by the “big six” banks on traditional residential mortgages . Plus, life mortgage rates are fixed for life, which means you’ll know exactly how much you’ll need to pay off when your plan ends.
Myth: It is not possible to pay off a mortgage for life with release from equity.
Truth: The majority of lifetime mortgages now have a fixed term prepayment charge, which ensures that at some point in the future your plan can be paid off without penalty. There are also several ways you can actively manage or reduce the interest accrued on your plan while it’s in place.
Myth: Eventually, an outstanding life mortgage will increase to exceed the value of the property.
Truth: All ERC member lenders (see above) offer products that include a “No Negative Equity Guarantee”. This means that when your property is sold, your loved ones will not be called upon to pay a shortfall. If your property sells for more than the amount you borrowed, the balance belongs to your beneficiaries.
Does this debunking exercise mean freeing up equity is the best thing since sliced bread? Of course not. It is not for everyone, but it has become an increasingly common product capable of improving the finances of many elderly homeowners.
One final point regarding perhaps the most common misconception about freeing up equity needs to be confirmed: you remain 100% owner of your home and also have the freedom to relocate, subject to the lender’s criteria, if you need it.
THE WEEK IN FIGURES
- £ 4.64million – It has been revealed that 278 UK charities pay their bosses more than the Prime Minister – who earns £ 157,372 a year. The highest paid employee in the charitable sector works for the Wellcome Trust. His most recent salary, including salary and bonuses, was £ 4.64million, an increase of £ 1.3million from the previous year.
- £ 250 – Actress and singer Bonnie Langford has revealed that she and other cast members had the opportunity to invest £ 250 in the musical Cats after the series struggled with cash flow in the 1980s Ms Langford turned down the opportunity before Cats continued to run for 21 years in the West End and 18 years on Broadway, making $ 3.5 billion in 2012.
- 100 – Schoolchildren may not be particularly enthusiastic, but it has been announced that from next year all children will receive 100 hours of extra lessons per year, as the school week will last at least 35 hours.