MYTHS ON EQUITY RELEASE MORTGAGE

It often amazes me as to the number of telephone calls I receive from solicitors and accountants that relate to the following theme:-

“Gordon, you know I don’t like or believe in  the Equity Release Mortgage, BUT, I have racked my brains for an alternative, suitable answer to my client’s financial problems and Equity Release seems to be the only logical solution.”

I usually reply “that Equity Release mortgages are only bad when the wrong product is mis-sold to the wrong people, in the wrong circumstances at the wrong time”.

There are circumstances when these loans can help clients resolve financial pressures. I only investigate whether they are appropriate having exhausted looking at all other options.

Equity Release Mortgage case studies:-

The following case studies give examples of where equity release really helped to improve these clients financial position.

  1. An accountant contacted me as his clients in their 70’s had taken on so much debt that all of their income were taken to service the debts. They had not gone into arrears but were having difficulty in servicing the loans, in fact the pressure was so great they could not afford to live and would soon have credit arrears problems. 
    • With the agreement of their only child, I arranged an Equity Release mortgage. This repaid all of their debts and released income to fund their lifestyle.
    • The clients were so relieved with the outcome and the accountant was kept informed during the whole process.  The client’s, their son and the accountant were all made aware that the lifetime mortgage has not eradicated the debts, and that interest is still being added annually which will obviously reduce the eventual inheritance that their beneficiary will receive.  However, they now no longer have to worry about mounting debts and lack of income to live on.
  2. A solicitor contacted me with a client, a widow, with no living relatives.  She had a large bungalow, had developed arthritis and was therefore unable to maintain her beloved garden.  She couldn’t afford a gardener or pay for much needed repairs to the property. The property had been her marital home and she could not bear to sell leaving her memories behind.
    • The first thing we did was to ensure that she was receiving her full state benefit entitlements, then, we arranged an initial release of money so she had sufficient funds available to carry out the repairs, enjoy a holiday and provide a reserve from which she could draw to pay a gardener.
    • The result was wonderful for this lady who is now so relaxed knowing that she has sufficient money to fund her lifestyle. A satisfactory outcome. She was made fully aware that the interest would be added to the loan every year, thereby reducing the amount of inheritance that would be left to her beneficiaries, however, as she assured me that she had no living relatives she and her solicitor were happy with this outcome believing that whoever inherits her estate should be glad to receive whatever is left.

I do come across some horror stories. I met a lady who had gone direct to a lender some years before. She has found that Equity release can be a nightmare. The lender in question did not have a suitable product to meet her circumstances yet pressed her to take a product which was not really suitable. The lender is now no longer trading so she finds herself locked into a loan that doesn’t suit her circumstances and causes her considerable stress.

Going direct may have attractions to some clients, yet this experience emphasises the need for clients to seek independent advice when investigating whether an equity release mortgage is the right solution.

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