Wise decision or unwise decision?
Equity release has been on the table for a while as an option for elder people to refinance their lives or boost their lifestyle by adding extra cash to their personal economy. In some cases, it is a way out from debt, high bills or some other form of monetary restraing. In others, it’s just a money cushion in case something happens and the borrower suddenly needs some cash. Sometimes, its sole purpose is to finance a lifestyle change, a long trip, home improvement or other activities of the like.
Whatever the case is, when the first equity release deals appeared, they quickly gave the scheme a bad name. These sorts of loans were unregulated and many were scammed in one way or another. Fine print, high interests, negative equity, overwhelming debt, hidden charges, you name it. People started to slowly walk away from equity release, as it was seen as nothing more than a malicious scheme to rip old people off their precious money and properties. In other ways, black hat lenders were taking advantage of vulnerable people for their own self gain. There were plenty of equity release court cases, when people tried to defend their ownership and their captital against those with whom they had made an agreement in the past, but since regulation was poor, there wasn’t much certainty the judge would rule in their favour.
However, things changed. Government offices started regulating the activities of equity release lenders and laws were written on the subject, in the UK as well as in other countries where these lenders were offering their services. People started to return to equity release schemes, since now they were safer. Recent measures taken by the government, like the no negative equity guarantee – which assures that the total amount of the debt, including all fees, and interests, will never be higher than the value of the property – keep covering the borrowers with layers of protection.
What could go wrong?
Even if the scenario is now very different from what it was in the 80’s, there is still a lingering negative image about equity release deals. However, some of that bad fame is based on an old state of things that is no longer a reality, and there are also myths about equity release that need to be exposed as untrue so people can decide whether or not they want to engage in such a deal, knowing the truth and making choices based on it.
People sometimes fear that they wil lose their properties if they engage in a deal, and be left in the streets when the evil and fearsome lender comes to collect the money. As a matter of fact, it is stipulated in equity release credit agreements that the lender has absolutely no right over your property before you die or move to long term care for good. Equity release defaults also worry many people, and they did prove to be dangerous in the past, without the strong regulations that are enforced today. The borrower is protected, especially if there is a standing no negative equity guarantee, which most lenders offer as a competitive service.
SEC fillings of equity release lenders are now more complete and cover all relevant aspects of the lender and borrower roles in equity release, as well as what happens to the money and the property in controverted cases.
Out of debt… again
Depending on the scheme you’ve chosen, when you engage in an equity release scheme you might have to pay some money every month – in example, in the interest only mortgage schemes – or even no money at all until your house is sold. No negative equity guarantees should keep you out of debt if you meet your monthly payments, but even in that case for a reason or another you might fear that you won’t be able to do so, and your debt would grow and grow in front of your eyes.
With the right finance management scheme, you should have no problems. Can you remortgage expensive equity release loans? Yes, you can, if you find a lender that offers convenient rates. Hopefully, you won’t need to go that far, if you choose your equity release lender wisely to begin with. Refinancing an equity release loan with another sort of mortgage may help you regain posession of part of your property, but don’t forget that some lenders will impose you penalizations for early repayments. You need to discuss this with your lender before you agree to any sort of deal.
If you do things correctly and get proper advice, you shouldn’t have major problems with your equity release scheme.