What is an Equity Release Mortgage?
An equity release mortgage is also sometimes referred to as a lifetime mortgage.
It is a mortgage/loan which is taken out against your home, or another property in your name, in exchange for you taking out a sum of cash (equity).
The loan amount (plus interest) is then repaid either when you move into long-term care, sell the property or die.
These schemes are normally targeted at people over 55 and the cash or equity released can be taken either in small amounts over specified periods of time, or as one large lump sum which can free up cash for you and your loved ones to use.
With lifetime mortgages, you do not usually have to make repayments towards the mortgage whilst you are still living. The interest is added to the mortgage and is then repaid upon your death. However, there is the option to pay some or all of the interest and capital off during your lifetime.
Some equity releases are known as home reversions. This is where you can sell part or all of the equity in your property to a home reversion provider in exchange for regular payments of money over a period of time, or as one lump sum. This type of equity release scheme enables you to live in your home rent-free until you sell it or die. Once you die, or you sell the property, the sale proceeds are then divided according to ownership of the property.
Mis-sold Equity Release
Equity release can be a useful way to borrow money without having to sell your home. This means you can stay in your own home and avoid the costs of relocating. However equity release can be mis-sold. Mis-selling is dishonest or misleading selling – a mis-sold equity release policy can be an expensive financial burden. How can an Equity Release Mortgage be Mis-sold?
If an equity release/lifetime mortgage was sold to you before the equity release plan’s scheme minimum age (usually age 55, but in some cases age 60 or 65), it could have been mis-sold to you.
If the equity release mortgage taken was for more than 60% of the value of your home, then it could have been mis-sold.
If the interest rates were not fixed on the mortgage, or an upper limit was not put on the variable interest rates, then the equity release mortgage could have been mis-sold.
If you are not given the option or right to remain in your home for life, or until you sell or move into long-term care, then you could have been mis-sold your equity release mortgage.
If the option to move your equity release mortgage to another property was never discussed or offered, you could have been mis-sold your equity release mortgage.
If there is no provision to guarantee your mortgage in the event there is not enough funds after sales costs, estate agents and conveyancing fees, then you could have been mis-sold your equity release mortgage.
If you were not advised that you can make some, if not all interest repayments over your lifetime mortgage, you may have been mis-sold your equity release mortgage.
If you were not advised that you could release smaller sums of money, not just as one large lump sum, you may have been mis-sold your equity release mortgage.
The above list is not exhaustive but are some of the main points that cover mis-sale.
Would a Lender Mis-sell me an Equity Release Mortgage?
Unfortunately, many lenders have been found to have mis-sold equity release mortgages to their customers.
Equity release can be more expensive than a normal mortgage because you are usually charged higher interest rates and, when the interest is added, the mortgage costs can mount up very quickly. It is therefore easy to see how a vulnerable customer could be talked into equity release without realising the full consequences of taking the equity release.
The Financial Ombudsman Service is currently looking at equity release and lifetime mortgages and their mis-sale due to the complaints that have been raised about them to date.
Can I Receive Compensation for Mis-sold Equity Release Mortgage?
Any compensation from the equity release mortgage provider, and indeed, any compensation that is sought by the Financial Ombudsman Service would include: –
- Compensation for distress and inconvenience experienced by the mis-sale;
- Any early repayment charges, with interest;
- Compensation on the estate to put the customer back into the position they would have been had they not received unsuitable advice.
Should I check if I have an Equity Release Mortgage?
If you do not know if you have an equity release mortgage, then you should definitely check to see if you have this type of mortgage.
To check if you have an equity release mortgage, you should firstly ask your mortgage provider to confirm this for you.
Should I check if a Relative had an Equity Release Mortgage?
You should check if a relative had an equity release mortgage as this will impact on their overall asset in their property in the event of their death. This can lead to surviving spouses losing out financially with any inheritance and leaving them in a vulnerable financial position following their loved one’s death at a time which will already be very difficult for them.