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If you think lifetime mortgages are best avoided, it’s time to think again.

Perceptions are changing evidenced by significant market growth and demand in recent years. Despite this, there are still myths that need dispelling around lifetime mortgages.

Myth 1: THEY’RE A LAST RESORT OPTION.

That’s no longer true, if it ever was. The increasing flexibility of lifetime mortgages reflects the growing popularity of using property wealth to meet later life needs.

  • 51% of homeowners aged 45+ see property wealth as part of their financial plans for later life
  • 21% see property wealth as a way to help family members while they’re still alive
  • 44% feel borrowing in later life is becoming a more common way for people to manage their money
  • Seven in ten people aged 45-64 see property wealth as important to their financial comfort in later life

Source: Beyond bricks and mortar (ERC 2019)

Myth 2: YOU MUST STAY IN THE SAME PROPERTY FOR THE REST OF YOUR LIFE.

With most lifetime mortgages, you can move home and transfer the loan to the new property providing it meets the lender’s terms and criteria. A partial repayment may be required.

Myth 3: YOU’LL LEAVE DEBT TO YOUR FAMILY AND LOVED ONES.

Providing the terms and conditions are met, no debt is left to your estate and you’ll never owe more than the value of your home once sold upon death or permanently moving into long term care.

Myth 4: IT’S NOT POSSIBLE TO REDUCE THE OUTSTANDING DEBT.

With some products you can make partial repayments without early repayment charges. The amount that can be repaid is usually up to a fixed amount each year. Some products also offer fixed early repayment charges that only apply for a set time period, after this there’s no charge.

And some products give you the option to pay monthly interest. Although this will not reduce the amount borrowed, the debt will not increase as much as it would if you let the interest roll up over the life of the mortgage.

Myth 5: EQUITY CAN’T BE RELEASED IF THERE’S AN OUTSTANDING MORTGAGE.

You can apply for a lifetime mortgage providing you pay off your existing mortgage balance. This can be done either through the equity you release or by another means.

Using equity release to repay an existing mortgage could cost you more in the long-term.

Myth 6: YOU WON’T BE ABLE TO LEAVE YOUR PROPERTY AS AN 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 sale of property, any money left over can go to your beneficiaries.

Also, some products let you ring-fence a portion of your home’s equity to leave as an inheritance for loved ones.

Myth 7: IT’S UNSAFE AND UNREGULATED.

Lifetime mortgages are regulated by the FCA. Also the Equity Release Council (ERC) was established in 2012 to provide consumer protection specifically for this market. Members must adhere to its standards of conduct and practice.

Myth 8: YOU’LL LOSE OWNERSHIP AND CONTROL OF THE PROPERTY.

With lifetime mortgages, you’re the owner of your home for as long as you want to live there, similar to a regular mortgage providing you meet the conditions of the lifetime mortgage.

Myth 9: YOU’LL OWE MORE THAN THE VALUE OF YOUR HOME.

As part of adhering to the ERC Statement of Principles, all members must now feature a ‘No Negative Equity Guarantee’. This means you’ll never owe more than your home is worth once sold, even if this is less than the amount owed. This applies upon death or permanently moving into long term care. The guarantee only applies when you meet the product’s terms and conditions.

Note:

  • Taking out a lifetime mortgage will reduce the value of your estate
  • Taking out a lifetime mortgage may affect your entitlement to state benefits
  • Consolidating other debts could cost you more in the long term

FOR MORE INFORMATION

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Email: support@wearejust.co.uk

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