Equity Release Schemes: Can I Switch Plans?

By Mark Gregory on December 29th, 2012

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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 Tipsolicitor’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.

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