The last few years have seen a significant rise in the popularity of equity release schemes. You could save money on interest by switching…
Equity release plans (where you release some of the equity in your home) have become increasingly popular in the past few years, with more people seeking to top up their retirement income. More than 214,000 lifetime mortgages (the most popular form of equity release) were bought between 2015 and the end of 2020, according to the Financial Conduct Authority.
The flexibility of existing schemes makes them more appealing to those needing additional income or those who want to gift their children money for a house deposit sooner rather than later.
If you took out an equity release scheme ten or 15 years ago, the schemes back then were less flexible, and it’s also entirely possible that your interest rate would have been higher then that rates are now.
You could pay less interest
If you have taken out an equity release plan five years ago or more, it’s worth reviewing it so that you can see if you can switch to a new deal and make a substantial saving. You could be paying a much lower rate of interest.
To put things into perspective, here are some real-life examples of situations where some of our clients have made a saving on equity release by switching:
Case study 1:
A client took out an equity release previously where he borrowed £158,000 and was paying an interest rate of 6.99%.
By switching to a new plan with a lower interest rate, he will have saved just under £10,000 in interest in the first five years.
In ten years, he will have saved £55,000.
In 15 years, he will have saved £126,000*.
Case study 2:
A client took out an equity release, also for around £158,000.
By switching to a new plan with a lower interest rate, she would save £66,000 in the first ten years.
In 15 years, she would have saved £127,000*.
*Switching may include fees.
How do you switch?
If you’re worried that switching sounds like a hassle, we’re here to help. We will do all the hard work for you, so it’s relatively easy. You will have to take independent legal advice which is required for equity release. You must also provide the paperwork for your existing equity release mortgage. We can advise you on what’s best for you, and then solicitors will do the rest. It’s a fairly straightforward process.
Through our trusted partners, Mortgage Advice Bureau, we can advise you on whether switching is right for you. We do the calculations as to whether or not it’s viable for you to switch, and if it isn’t, then our advice will be to stay where you are.
Another reason to review your equity release plan is that life can change. There may be something else that a new equity release mortgage could help you with. Maybe when you took out the equity release before, you only took out a lump sum and didn’t have the option to take out any further money.
Your circumstances may have changed. One partner may have died, you may be looking to put a new roof on your house, or you might want to go on a luxury holiday. We can review your mortgage to see if you can get a better interest rate.
Why consider equity release?
If you don’t have an equity release plan but are considering one, it may benefit you for various reasons. You can use the funds to pay off an existing mortgage, avoid having to sell your home and downsize, gift a deposit to your children to help them get onto the property ladder, fund your retirement, or have the holiday of a lifetime. Some people also use it to split assets in a divorce.
You and your partner will both need to be over the age of 55. You will need to be a homeowner, and your home will need to be worth a minimum of £70,000.
The most common type of equity release is a lifetime mortgage, where a loan is secured against your home. You can take the money as a lump sum or a series of separate amounts.
With a lifetime mortgage, you still own your home and can remain there until you die or move into long-term care. The mortgage provider registers a first charge on the property and has the first call on any funds available from its sale.
There are no monthly repayments to make as the loan, plus roll-up interest is repaid when the plan ends. However, you can repay some or all of the interest to reduce the amount of interest that accrues.
More Information
Contact us for a free, no-obligation consultation on an existing or new equity release plan.
Here are some other articles on equity release: