In today’s world many people have built their inheritance by owning their main residence. However, this still doesn’t negate their requirements for more cash on a day to day basis for everyday expenses, home improvements or maybe a dream holiday!
Equity release is a way of freeing up some or all of the equity that has built up in this property that you have worked so hard for and made many sacrifices along the way.
Equity release schemes are a popular choice in today’s ‘want it now’ social environment and as such there are several options available on the market. For those who have an existing equity release plan, it is possible to shop around for a better alternative and take out an equity release remortgage.
Who would have thought all those years ago in the early days of equity release that one day you would be able to switch lenders! It was considered in those days a ‘one stop transaction’ which once undertaken was considered there’s no going back? Well how times change – along with interest rates, product flexibility & retiree’s attitude towards their retirement & how they view it.
Points to consider first
Many equity release schemes charge an early repayment penalty, also known as early exit fees. These charges are, in theory, supposed to protect the lender from losses incurred due to early repayment of the loan. Before you decide to go ahead with an equity release remortgage, it is important to find out whether your existing plan comes with an early repayment charge clause, and whether it is applicable to you. Different lifetime mortgage companies apply different formula for assessing how their penalty is applied. The following list confirms which companies follow each different type of equity release early repayment charge: -
- Gilts – Aviva, Just Retirement, Partnership, more2life, Norwich Union
- Fixed penalties – LV=, New Life Mortgages, Godiva, Saffron Building Society, Northern Rock, Hodge
- Bank of England base rate – Prudential
- Swap Rates – Hodge Lifetime
Early repayment charges vary from lender to lender and scheme to scheme. Some lenders can charge as high as 25% of the total amount that is borrowed. If the penalty is too high, this can nullify any savings that will be made on an alternative scheme. Some lenders can have a lower rate such as 5% for the first five years and nothing thereafter. Some, especially newer equity release schemes, don’t have any early repayment penalties.
To have a realistic idea of what you will break even with the new scheme, it is necessary to consider the setting up costs as well. These usually include any application fees charged by the lender, solicitor fees, adviser fees and the valuation fee. Sometimes you can find lenders offering extra perks such as a £500 cash back, or free valuation. This can be an attractive proposition for those interested in an equity release remortgage with a newly proposed equity release lender.
How do I calculate the final equity release balance
If you need to apply for a straightforward ‘like for like’ remortgage, then it is necessary to apply for the exact amount that you will require and no less. To do this, it is important to get a redemption statement from the current lender. From this it is possible to find out your daily rate of interest and calculate exactly how much you will owe when the switchover goes through.
Normally it can take up to sixty days for an equity release remortgage to go through. Therefore, your equity release adviser will need to accommodate the extra 60 days worth of interest the existing lifetime mortgage provider will be charging during the time your new application will be being processed. Add this to the redemption statement, also the set up charges that will be levied & you have the amount that needs to be applied for on your new equity release application.
Note – if your original application was linked to government gilts then be aware that between date of receiving your redemption statement and completion the penalty could still change.
It is important that the whole procedure is managed by an equity release remortgage expert who has access to the correct information & a good solicitor. (preferably from ERSA - Equity Release Solicitors Alliance).
Compare Equity Release have a switch plans tool facility which enables you to compare whether it would be in your interests to remortgage your equity release plan. To establish how much money you could save over the term of your lifetime mortgage scheme click here.
If you have any questions over potentially remortgaging your equity release scheme call the Compare Equity Release team on 0800 678 5169
With lowering equity release interest rates and a much wider selection of lifetime mortgage plans available today, many people who already have equity release mortgages are asking the question, ‘Can I Remortgage my Existing Equity Release Plan?’
Switching to a new lender is not as simple as just switching to a new scheme. For a switchover to be viable, it is important to consider several factors. One factor to consider is whether your existing equity release mortgage has an early repayment charge clause.
An early repayment charge (ERC) is a penalty that is applicable to certain equity release schemes. While most lenders are looking more carefully at early repayment charges, it was not the case a few years ago.
In years gone by, the actual charge varied from scheme to scheme and may range from a fixed percentage charge of 5% of the amount repaid, upto as high as 100% of the total amount borrowed with the old Norwich Union (now Aviva) equity release mortgage schemes!
Such a high penalty can make a switchover totally unviable, even if the interest rates are considerably lower. As you can therefore see, there are many factors to consider in an equity release remortgage.
Who can I turn to?
The best person to ask the question ‘Can I switch plans?’ is a professional equity release adviser. This is a financial adviser with expertise in equity release mortgages and can provide objective and valuable advice on alternative lenders and plans. An equity release adviser usually charge a flat fee for their services, which is normally taken into account when calculating the set up costs for a new ER mortgage. The best equity release adviser’s are independent as they have access to the whole of the equity release market. They can research the best equity release remortgage deals which can include incentives such as free valuation, cashback or even no application fee with some providers.
What factors do I need to consider?
When considering alternative equity release schemes, it is necessary to work out when the plan will actually start being profitable in order to come up with a real estimate. In order to do this, it is important to understand the set up costs for switching over to a new provider. These can include the following & are important in the strategic review of the switching process: -
1. Valuation Fee – is usually paid up front on application & based on the property value. The higher the property valuation; the more expensive the fee.
*Top Tip – Look for companies offering a free valuation, as there are then NO upfront fees.
2. Application fee – usually deducted by the lender from the equity release proceeds on completion. Some lenders will add this; however this will attract compound interest also.
*Top Tip – Some companies will not charge an application fee. Help cut set up costs
3. Solicitor’s fees – as part of SHIP rules you will need to take independent legal advice which is separate from the lenders.
*Top Tip – solicitor’s fees are unavoidable, so shop around to find a good deal. Cheapest is not always best. Fair fee is around £500 from a member of ERSA.
The main consideration when shopping around for a better equity release deal is the interest rates on offer. In general, interest rates are much lower today than a few years ago.
For instance a recent equity release remortgage undertaken, involved an old Northern Rock lifetime mortgage plan. With an interest rate at 7.9%, the client was getting concerned with each annual statement he received. The compounding effect of the interest on his balance seemed a sincere matter for concern. However by remortgaging onto the AVIVA flexi plan at 5.92%, with FREE valuation & £500 cashback, even with set up costs, Compare Equity Release managed to save him £13400 over the next 15 years. Certainly pleased him...& most definitely his beneficiaries’ pockets!
Therefore, an old equity release plan that was taken out a few years back will be locked into older rates and can now be significantly improved upon.
Can I borrow more money?
Another aspect of the older plans was inflexibility. There were no drawdown equity release plans over 6 years ago. Therefore, people looking to borrow extra funds to remortgage equity release schemes could now find a more flexible deal aswell as a better interest rate.
From experience, with property values on the whole having increased since plans were taken out & one definite is that you will be a number of years older, with both contribute to the fact that more funds could be potentially borrowed. New plans available in 2012, have enhancements which now take into account health & lifestyle factors. Therefore, for someone who is now looking to take a maximum equity release lump sum should consider the new range of enhanced equity release plans from AVIVA, Partnership & more2life.
To calculate the maximum equity release use the Compare equity release calculators which are free of charge.
An equity release adviser can guide you towards lowering your lifetime mortgage interest rate will actually translate into savings for you.
There are many reasons why one would want to change their existing equity release mortgage and shop for an alternate plan. Whether it is because you need an additional loan, or because you know there are better products available – this may be the best time to consider the question ‘Can I Switch Plans’?
For your FREE equity release remortgage check-up contact Compare Equity Release on 0800 678 5169 or complete our online contact form.
It has taken some time for equity release interest rates to mirror the reduction in conventional mortgage interest rates offered by the banks & building societies. You may be forgiven thinking the two rates are directly related. They are not.
In fact the movement in the lifetime mortgage market is usually more down to the competitiveness of the providers; particularly AVIVA, Just Retirement & LV=.
The knock on effect of these reductions has been a surge of consumer interest in UK equity release schemes during 2012.
What Factors Affect Lifetime Mortgage Interest Rates?
The inspired competitiveness from the providers is a result in the fall of longer term interest rates on the open markets. Long term swap rates had reached a level where lifetime mortgage providers feel is justified in passing on these reductions. Lenders borrow their funds in different ways. Companies using government gilts as their early repayment charge as their calculator have also been able to pass on these rate savings.
With companies like Stonehaven using the 15 year FT-SE gilt index as their repayment penalty format, their latest tranche of borrowings are at an all time low of 2.82%. This could be great news for equity release applicants looking for possible early repayment with no penalties in the future.
The Financial Benefit to Homeowners
The idea that homeowners can free-up some equity by way of equity release lifetime mortgages is enticing. The surplus of cash can be used to pay off debts and loans, as well as be used to help the children. Many homeowners even choose to carry out home improvements including having the kitchen or hardwood floors they always wanted but could never afford. These lifestyle enhancements have created an increase in demand for equity release plans, in turn increasing the competitiveness of equity release interest rates.
What are the lowest equity release interest rates currently?
A lot of different firms are currently offering attractive equity release interest rates, but believe it or not they are harder to find than you would think. It is always best advice to speak to an independent equity release adviser. They know the market best. As they are whole of market advisers & can deal with all the lifetime mortgage schemes currently available, they will be able to source the best interest rates. If you’re serious about equity release plans, don’t tackle the job all by yourself, you could be missing out on a great opportunity.
AVIVA provide the lowest equity release interest at the end of the first quarter of 2012, with a market leading 5.92% on their drawdown lifetime mortgage. Couple this with AVIVA’s free valuation upto £1million and £500 cashback, it represents an excellent deal.
If you’re searching the Internet for the best equity release interest rates you should be aware of two facts. Equity plans can often involve more aspects than meets the eye. Failure to understand a specific part of the plan could mean the difference between actually locking into a good rate, or being deceived into believing you got the best deal.
The lowest interest rate isn’t always best advice for everyone. Dependent upon one’s needs will determine the type of scheme suitable. With an array of equity release plans available such as home reversion, drawdown equity release & enhanced lifetime mortgage’s the decision can be daunting. Hence, the reason most equity release providers will insist on you receiving independent financial advice before they will accept any application.
Secondly, any potential consumer should be aware that some rates are not offered publicly over the Internet. An expert equity release professional will be able to offer customised equity release interest rates depending on your specific situation. Brokers such as Compare Equity Release have access to special deals that most financial advisers would not be privy to.
Additionally, by going direct to certain providers such as AVIVA may not always be the best option. Having a direct sales force costs a great deal of expense. Company car, pension scheme, sickness benefits & a basic salary has all to be paid for by AVIVA. As none of these costs are incurred by them with independent equity release advisers means that these savings can be passed on in a lower interest rate & cashback deals.
However, certain specification such as home value, the type of equity release plan, and your age all factor into the possible interest rate a consumer is eventually offered. For this reason, we always recommend seeking the advice of a professional. Equity release plans are not as simple as they always appear on the surface. Before you sign away the children’s inheritance, you want to understand all the aspects of the relevant plan.
With that being said, many experts agree equity release interest rates are being offered at great rates. Many professionals on the subject are advising to take advantage of these competitive rates while they still exist. As with any equity release schemes, there are risks. It’s imperative, in your consultation that all of the possible risks are fully outlined to you & the alternatives considered.
If you are interested in freeing up some capital to use for whatever you like, take a closer look at equity release lifetime mortgages. The first step is conducting your own independent research on the Internet. The second is speaking with a certified professional. They are Compare Equity Release and looking forward to discussing & help you find the best equity release deal for you.
Compare Equity Release can be contacted on 0800 678 5169 or by completing their online enquiry form.
Despite the fact that new mortgage applications are way down on where they were prior to the credit crunch and at a time where the Government is actively trying to encourage more lenders to keep the mortgage market moving, in their strange wisdom, the Financial Services Authority (FSA) have decided that it is a good time to contrive a list of new reforms aimed at the mortgage market. This is also likely to have some sort of impact on the equity release UK industry.
To be fair and for the most part, the FSA are trying to ensure that residential mortgages are only ever offered to applicants that can realistically afford such a financial commitment in the first instance. After all, is this not a huge part of the reason for the worldwide banking crisis back in 2008? We obviously need to learn through our mistakes in the past and ensure that they are not repeated in the future - so no matter what the state of the economy may have been today, it is highly likely that these new reforms would have been implemented whatever.
Where equity release schemes may be affected most in the future will be the new reform that stipulates that all new mortgage applicants are to be offered full mortgage advice whenever they are looking to take out such a product. The reforms do not go as far as suggesting that this advice ought to be followed: merely that full advice should be furnished to each and every applicant at the time an equity release product is sought.
The reason that mortgage advice will be compulsory for applicants looking into equity release plans is the fact that such clients are labeled as being ‘vulnerable’ by the FSA. This is most likely going to be due to the ages involved in taking out such a policy: bearing in mind that the minimum age is around 55 years of age for the majority of lifetime mortgage equity release plans.
Investigating the potential impact of these reforms further, it is estimated that as many as one million people could be denied a mortgage based on the proposals that have been put forward by The FSA. This comes at a time where people are already struggling to get on the first rung of the housing ladder and therefore this really is not a helpful statistic at the moment. Most lenders have already tightened their belts where mortgages are concerned and have withdrawn many products (e.g. the 100% mortgage) from sale.
Over the last year, the Government has tried to provide some kind of financial assistance for people struggling to get into the housing market. However, many people believe that it is not fair to rely on tax-payers’ money to assist such people; this is a typical example of the Government’s refusal to take the bull by the horns, where the banking industry is concerned, and instead they choose to skirt around all issues.
If you have been considering the myriad benefits of equity release schemes, it is important not to let the reforms from The FSA put you off in any way shape or form. As per usual, if you will be obliged to receive full mortgage advice, as with most things in life, this will merely be ‘lip-service’ and don’t forget that it is entirely up to you whether or not you decide to go ahead with the information given to you. At the end of the day, use this information to your own advantage as it can never hurt to be even more knowledgeable on the equity release deals in the UK market.
To find our more about how Compare Equity Release can assist you please call 0800 678 5169 or email
This e-mail address is being protected from spambots. You need JavaScript enabled to view it
Are you looking to secure your life post retirement? Do you want to lead a life free from tension and financial worries? If the answer is yes, opting for equity release schemes is the right decision.
As different people have different financial requirements, recent equity release schemes have been designed and developed to cater to your needs. These schemes include home reversion schemes and lifetime mortgages. Roll-up lifetime mortgages are preferred by many people these days.
Features of lifetime mortgages
Lifetime mortgages are especially for those homeowners who are entering retirement. With such a plan, retired homeowners can release equity from their property in the form of a secured loan. The repayment of a loan under this plan takes place after the homeowner has moved into long-term care or after the applicant has passed away.
After opting for a lifetime mortgage, homeowners can continue to live in their residence. This is also applicable when the equity release balance exceeds the value of the property.
The no negative equity guarantee also ensures that no debt over the property value passes to the beneficiary. Therefore, inheritants are given assurance that the no debt is incurred by them from the decision made by their parents.
As the release of equity is completely tax free, applicants can use the money for any purpose they want. Due to all these benefits, more and more retired homeowners opt for equity release to secure their future.
If you are thinking about setting some time aside to compare equity release schemes, you have probably been considering its virtues for some time. However, you may now feel completely daunted by what you perceive to be a total financial minefield. If you take just one thing away from reading this article, let it be the fact that the equity release UK market really needn’t be that complicated and there are always financial advisors on hand to guide you through any aspects you do not understand when looking to compare deals.
To start the ball rolling, in order for you to compare rates in the equity release market, there is a list of five essential features you should bear in mind when looking for any lifetime mortgage product:
1. SHIP (Safe Home Income Plans)
We will start with the organisation known as SHIP, as this is the regulatory body that aims to ensure safe and secure practice within the equity release UK market. If you have a particular lender in mind for a lifetime mortgage product, it is imperative that you check to make sure that they are affiliated with this organisation. If no such allegiance can be found, do not touch the company as you will have no protection from its features.
2. Tools to Help You Compare Equity Release Plans
Just as you would with other financial products such as travel deals and insurance, there are now tools on the internet that will allow you to compare equity release schemes. All of these companies state that they offer a free equity release comparison calculator - but as if they could charge for such a facility in the first place. Nevertheless, many of these equity release calculators are very helpful to give you an idea of how much equity you are likely to be able to release from your property.
There are even some other equity release comparison tools that would allow people who already have a lifetime mortgage to compare deals in the market to find out if they might be better off switching to a new product. Given today’s economy, this is actually becoming more and more popular and could very well help you to find a better deal.
3. No Negative Equity Guarantee
This really is an important criterion to bear in mind when you look to compare equity release deals. Basically, this means that the company with whom you decide to take out your equity release plan will guarantee that there will never be any nasty surprises when the plan is finally paid back. So, when the people on the equity release plan do pass away or move into permanent care, this is when the company will retrieve their money, but crucially, they will not place a demand on the estate or relatives for payments that go beyond the final sale price of the house. Therefore, the beneficiaries can never end up owing more than the value of the property.
4. Still Possible to Guarantee an Inheritance to Relatives
This is one of the most important considerations when it comes to people looking to compare equity release schemes. Indeed, many people will be put off straight away through the fact that they believe that their relatives would have to forego their inheritance if an equity release plan is taken out. Whilst there will always be an impact on the amount of money that can be left to your relatives, it is entirely possible to find an equity release plan that is able to literally guarantee a certain amount of money that is to be left to your loved ones, when you have gone.
5. Free Professional Financial Advice
One of the main features you will find on all of the websites that allow you to compare equity release plans is very quick and easy access to professional financial advisors. They will help you get a better understand the terminology of the equity release UK market and all that is involved. Do not allow yourself to struggle with this industry, if there are any aspects that are not as clear as they could be, utilise their professional services and get clarification on everything before you even contemplate taking out any equity release plan.
Despite the fact this article only covers 5 points that are aimed at helping you when you compare equity release plans, hopefully over time, you should come to realise that these points are essential to set you on your way. They are definitely the most important to ensure the equity release lifetime mortgage product you end up with is protected under SHIP and includes the guarantees that are offered through the very best and most reputable companies.
