The financial markets are constantly evolving. With interest rates showing some form of stability, even signs of reducing recently, new financial products becoming available all the time. Therefore, as a consumer it is always good to keep exploring the market for potentially better deals which could save you money.
For those who already have an equity release plan, one of the most common concerns is whether they can easily switch from one scheme to another. Gone are the days when an equity release mortgage was considered a one-off transaction. However, older equity release customers may need to be made aware that their current equity release scheme could be switched to a newer, more competitive plan.
A good reason someone may want to switch to a new equity home loan is because the existing scheme has been maximised and therefore an additional loan is required that may offer greater lending facilities. With the new form of enhanced lifetime mortgages which will offer greater lump sums based on poor health and lifestyle, this could be the ideal opportunity for such clients wanting the maximum release of equity.
Interest rates for borrowing are lower today than a many years ago as far as equity release schemes are concerned. Initially, the likes of Norwich Union, Northern Rock and Portman Building Society had interest rates exceeding 8%. Therefore consider a large equity release balance of £50,000 compounding at 8% per annum; the future balance could grow exponentially. However, by switching the equity release scheme to the new Aviva Flexi Plan at 5.8%pa could save over £18,300 over just 10 years, even taking into account the set up costs on a new lifetime mortgage plan!
To see how much you could save by switching plans use the Compare Equity Release Switch Plans Tool which help can analyse how much you could save.
Another important change in the market is that many new types of equity release mortgages have become available today. For instance, lenders may now have much more flexible terms on the loan than previously. Consider drawdown lifetime mortgage schemes that have only been around for around 6 years. These drawdown equity release schemes have transformed the industry landscape, so much so that the majority of loans taken today are on a drawdown basis.
The advantage of these schemes is that rather than taking the whole lump sum upfront, the applicant can take smaller, infrequent withdrawals whenever the time is right for a cash injection. With a lower initial balance, growing significantly only when further releases have been taken, results in the interest charged being considerably less meaning a lower future balance & greater equity left within the property itself.
Switching to an alternate equity release scheme is not just a matter of searching the internet for equity release comparison sites and applying for a new loan. Several factors need to be considered carefully in order to work out whether a new loan is viable. Even though the terms of lending may look rather attractive on paper, these need to be considered in the light of your existing loan. The biggest obstacle to switching plans could be that of early repayment charges.
With the largest equity release company being Aviva (formerly Norwich Union) they would be seen as the company that most would be likely to switch from. However, with the basis of their early repayment penalties being linked to gilts, Aviva customers may find it difficult justifying a remortgage of their Aviva equity release scheme. The reason being that with the recent fall in gilts rates has handed a heavy penalty for swapping schemes today.
Early repayment charges are penalties charged by some lenders which are meant to protect the lender from any losses made due to an early repayment of the loan. This penalty could be a lump sum, or a percentage of the total amount borrowed. Companies such as Aviva have maximum penalties as high as 25% of the principal amount!
NB some of the older Norwich Union plans did originally have potential 100% penalties, so be aware. In order to make a considered and correct decision about switching, it is important to get quality analysis on whether to switch plans, or not.
The most appropriate person to seek advice from is of course an independent equity release adviser. Advisers such as Compare Equity Release have the best tools available to offer a service that is unrivalled in the market.
Their unique Switch Plans Tool will assess you current equity release scheme, take into account any early repayment charges and even the net set up costs involved in applying for the new plan. No other company can offer such a FREE service where the calculation is processed on your behalf, with no adviser intervention in the calculation process. We recommend that once the results have been published, this should then provide the basis for discussion with our local advisers to find the best equity release deal available.
To benefit from the switch pans tool click here whereupon a FREE remortgage analysis can be started.
If you have any questions or issues regards remortgaging your current equity release plan call the Compare Equity Release team on 0800 028 3142 today.Back