A mere 16% of UK residents aged 55 or older are aware that interest on an equity release lifetime mortgage is compounded, while 70% are uncertain, according to the Boomer Barometer from Over50choices.
The study follows a report from the Equity Release Council that equity release activity reached record levels in H2 2022.
In response to the widespread misconceptions surrounding equity release and later life financial planning, Over50choices has launched a new calculator to help consumers understand the impact of compound interest on a lifetime mortgage.
The Barometer also revealed that 29% of over-55s wrongly believe they could end up in negative equity after taking out equity release, while only 9% were certain they would not, and 50% were unsure.
Additionally, 16% incorrectly believed that taking out equity release could mean they couldn’t always live in their home, and 9% thought it could prevent them from moving into care.
Ashley Shepherd, founder and managing director at Over50choices, commented on the findings: “The popularity of equity release has risen substantially in recent years with over £6.2bn borrowed in 2022 alone; a record year, up 23% year-on-year.
“Despite this popularity, our Boomer Barometer has shown that the majority of the over-55s in the UK still don’t fully understand how the products work with many either wrong or unsure when it comes to paying interest, as well as understanding the industry standards and regulatory environment.”
The company aims to empower consumers and help them make informed decisions with their new compound interest calculator.
Shepherd added: “Making the decision to take out equity release should not be taken lightly and not without fully understanding both the pros and the cons. We want to empower consumers to help them be as informed as they can.
“Our new compound interest calculator allows them to get a better understanding of the total amount that will need to be repaid and make an informed decision about whether a lifetime mortgage is right for them.”
