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Eight Equity Release myths busted

Updated: Apr 21, 2023

Eight Equity Release myths busted

Freeing up cash with Equity Release has helped thousands of older homeowners help fund retirements and fulfil dreams. But myths about using property wealth to help in later life surprisingly continue to exist.

It is time to separate the Equity Release myths from the facts. Here are some of the most common Equity Release and lifetime mortgage questions answered.

1. I have to pay tax on the money released with an Equity Release plan.

No. Cash released with an Equity Release plan is tax free and can be spent on many different things. Some of the most popular are helping out family, paying off an existing mortgage, repaying existing debts such as credit cards and helping to cover everyday bills. You should always think carefully before securing a loan against your home.

2. I’ll have to make monthly repayments with a lifetime mortgage.

If you want to make monthly repayments, there are plans you can choose to do so.

However, typically with a lifetime mortgage, there are no monthly repayments to make, as the loan plus roll up interest is usually repaid when the plan comes to an end.

3. Equity release isn’t safe.

Equity Release is regulated just like any other mortgage. At Optimus Mortgages we are proud to be a member of the Equity Release Council. The Equity Release Council is an organisation that was created to promote safe Equity Release products and to safeguard the interests of homeowners.

You need to receive qualified advice before committing to equity release and you can check online that the broker you are dealing with has the correct licence and is authorised to give you the advice you need, which is exactly what you get from Optimus Mortgages.

4. I could end up owing more than my home is worth.

Absolutely not. All of our plans meet the Equity Release Council's standards, and come with a No Negative Equity Guarantee, meaning you will never owe more than their home is worth and there will never be a debt for your family to take on.

5. If I take out Equity Release, I won’t own my own home any more.

Lifetime mortgages are the most popular form of Equity Release, and they are a loan secured against your home, just like a standard mortgage. With lifetime mortgage plans, you will still continue to own your own home and can live in it as long as you choose.

Another form of Equity Release is a Home Reversion Plan. These are very rare these days, although they used to be the primary way of doing Equity Release in the past, and are the reason for so many current myths. A home reversion plan allows you to exchange the ownership of some or all of your property for a lump sum of cash, along with the right to stay in your property, rent-free, for as long as you live subject to the lender’s terms and conditions. These plans involve the sale of part, or all, of the property and would result in a change to the title deeds and the sale will only achieve a percentage of the property value.

6. If I take out a lifetime mortgage, I won’t have anything to leave my loved ones.

Lifetime mortgages have become increasingly flexible in recent years, and there are now plenty of plans available which allow clients to protect a portion of their equity for inheritance. Alternatively, if someone doesn’t want their loved ones to have to wait until they die before receiving financial support, they could use Equity Release to provide them with an early inheritance. Bear in mind, however, that using a portion of someone's equity now means that the value of their estate will be reduced. Receiving a cash lump sum could also affect their entitlement to means-tested benefits.

7. You can't take out Equity Release if you already have a mortgage.

Repaying an existing mortgage, especially an interest-only mortgage that is coming to an end, is one of the most common reasons that clients take Equity Release. The only condition is that the equity release is the only ‘charge’ against your property on completion.

8. Equity Release is an expensive way to borrow money.

At Optimus Mortgages we believe in being competitive and transparent on fees. For all cases, our initial consultation is free, and you will not be asked to pay a fee until we are ready to submit the application on your behalf. £495.00 of the Advice Fee is paid at the point of application for the Equity Release plan or Mortgage. £995.00 is payable on completion of the mortgage. The total Advice Fee payable to Optimus Mortgages Ltd is £1,490.00.​ Payment of the full Advice Fee also entitles you to free annual reviews, and any future transactions are also free. There are additional services and processes that you will need to pay for, such as solicitor’s fees, the lender’s application fee and surveyor’s valuation fee and these are additional expenses of which you need to be aware. Optimus Mortgages work for our clients, not the lender, or anyone else. When a client pays for Equity Release or mortgage advice rather than using a ‘free’ service, or going direct, they can trust that everything we do is in their best interests. Your personal adviser learns everything they need to know about your circumstances, so they can find the best rates for your situation. We could potentially save you tens of thousands throughout the term of your Equity Release plan or mortgage.

If you want to find out more about Equity Release and whether it is right for you, please click on the link below to get in contact with me.

Optimus Mortgages Ltd is authorised and regulated by the Financial Conduct Authority. Optimus Mortgages Ltd is entered on the Financial Services Register under reference 945578.

Equity Release may involve a home reversion plan or lifetime mortgage which is secured against your property. To understand the features and risks ask for a personalised illustration.

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