How to Find the Best Equity Release Plan

By Mark Rumney on December 7th, 2014

Best equity release planEquity release schemes have seen unprecedented growth and have broken sales records upto the end of the third quarter in 2014. There have been many reasons for the surge in popularity, however with steps taken by the Equity Release Council and new product launches from companies like Hodge Lifetime, Stonehaven and Aviva have helped advisers provide a range of equity release solutions to the over 55’s in retirement.

 

One of the biggest selling equity release plans for 2014 has been the Aviva Flexi Lifetime Mortgage Plan. Using a combination of flexibility with its voluntary repayment option and lowest equity release interest rate this plan has seen the biggest impact and assisted many retirees achieve the lifetime goals.  However, what constitutes the ‘best equity release plan’ and why has Aviva’s Lifestyle Flexi & Lump Sum Max products helped break all records?

 

  • Aviva allow homeowners with a voluntary repayment system where they can repay up to 10% of the original capital borrowed every year, in a maximum of four installments at £500 minimum pay each time. There are no penalties for making these payments.
  • Aviva also have a unique feature of allowing on the death of a joint life planholder, the surviving partner to choose whether they wish to sell the property & repay the Aviva Equity Release Scheme within three years of the event.

 

As you can see finding a solution to the best equity release scheme has to incorporate many schemes features and factors. A qualified equity release adviser therefore has to analyse a number of factors which can include all of the following: –

 

  • Lowest equity release interest rates
  • Potential early repayment charges
  • Calculation of the maximum equity release
  • If drawdown needed, sizes of the cash reserve facilities
  • The various set up costs
  • Flexible repayment options built into the plan
  • Health factors which could influence the enhanced equity release plans
  • The future retirement plans of the homeowner
  • The clients attitude towards leaving an inheritance

 

Let’s look at each of these in turn:

 

  • Lowest Equity Release Interest Rates

The Hodge Retirement Mortgage offers the lowest interest rate at 4.75%. However, this is an interest only scheme and is aimed at people who want to pay a monthly payment so that the balance remains the same. Depending on the loan amount, Aviva tend to offer the lowest rates for traditional lifetime mortgages although for larger loans, companies such as Just Retirement, Pure Retirement & New Life may offer a lower interest rate. Your adviser at Compare Equity Release will look at the whole of the market to find the best rate for your circumstances.

 

  • Potential Early Repayment Charges (ERC’s)

Thankfully, you’re usually able to transfer your equity release scheme from one home to another, if you downsize, and carry on with the plan, as it’s a lifetime commitment. Most equity release providers use the movement in Gilts to ascertain whether a penalty would be charged if you do wish to repay early. If you’ve got clear intentions of repaying early, the best plan may a scheme offered by LV= who charge a fixed early repayment charge within the first 10 years and don’t charge any penalty at all after 10 years. Similarly, Hodge would charge a penalty during the first 5 years, starting at 5% in year 1 down to 1% in year 5, and they don’t charge a penalty after 5 years but these only apply upon downsizing. It’s a specialist area of equity release and it could the most important factor when considering the best plan for you.

 

  • Calculation of the Maximum Equity Release & Drawdown Facility

The maximum loan amount can depend on whether you take a one off lump sum or use the increasingly popular drawdown facility. You should only take the maximum lump sum if you need to spend it straight away otherwise a drawdown scheme might be more suitable for you. If it’s important for you to have the maximum drawdown available then Pure Retirement could be best option although their interest rate is not the lowest. Similarly, if you’d prefer to have your drawdown facility guaranteed for 15 years then LV= might be the best option as they’re the only company who offer this certainty. The amounts available as a one off lump sum are often the same from the likes of Aviva, Stonehaven, Pure Retirement & Just Retirement so your adviser can work out the best plan for you.


  • The Various Set Up Costs

Again, it’s important for your adviser to look at the whole of the market and consider the overall APR when comparing set up costs. Many companies tend to offer a free valuation, although Aviva increase their interest rate accordingly. The Pure Retirement plan offers a cash-back on completion, depending on the loan amount and product type, which can cover the overall set up fees but their interest rate is one of the highest. The Hodge Retirement Mortgage offers the lowest interest rate and has the most favourable early repayment charges, yet their admin fee is the highest on the market. Overall, the lowest fees doesn’t necessarily mean the best plan.

 

  • Flexible Repayment Options

Most equity release planholders prefer not to make any monthly or voluntary payments as they’d prefer to see interest roll up. Lenders such as Hodge, Aviva and more recently Stonehaven have introduced schemes which allow voluntary interest payments. Basically, you can opt to make voluntary payments of up to 10% per annum if it suits you. More2Life and Stonehaven also offer plans which charged a fixed monthly amount with the flexible option of converting to rolled up interest at any time. Here at Compare Equity Release we’re noticing an increasing amount of enquiries from clients who wish to pay some or all of the interest. We’ve already seen that the Hodge Retirement Mortgage offer the lowest interest rate but their scheme doesn’t allow you to convert to rolled up interest until the younger borrower reaches age 80. It’s a good idea to speak to an adviser here at Equity Release Supermarket as we can explain all of the options and recommend the best plan for your needs.

 

  • Health Factors Affecting the Enhanced Equity Release Plans

Thankfully, you won’t be declined for a lifetime mortgage due to any existing health issues that you may have. In fact, it can work to your advantage as some lenders will release more money if you suffer with a qualifying condition such as high blood pressure or diabetes. It’s important that your adviser discusses your health with you, as companies like Aviva are willing to offer a lower interest rate on their plans due to your health and lifestyle. Overall, though, interest rates tend to be higher for enhanced lifetime mortgage plans so your adviser will consider all options to find the best equity release plans for you.

 

  • Homeowner’s Future Retirement Plans

People are living longer and longer and the equity is usually the last asset that they can utilise for their retirement. Therefore, it’s important to speak to an adviser and explain what your future retirement plans are so he can recommend the best scheme for you. Do you plan to downsize? Do you need a large reserve from which to drawdown? Have you got any pension plans which can meet your objectives? As we’ve seen already, the best plan might not be the plan with the lowest equity release interest rate, lowest set up fees or lowest early repayment charges, the best plan is the one that suits you both now and in the future.

 

  • Attitude Towards Leaving an Inheritance

My client’s views regarding leaving an inheritance can vary considerably. Some plans offered by companies such as More2Life, Aviva and New Life can include a guarantee that you protect a portion of your property for your family, so these may be the best plans for you. Other clients may prefer to make voluntary or regular interest payments so that the outstanding balance either remains the same, reduces or increases more slowly. However, should your attitude to risk be that you’re not concerned about leaving any inheritance, the best equity release plan for you would be schemes which offer higher overall loan amounts.

 

Summary

 

Overall, you need an independent equity release adviser to fully consider all options when you’re considering equity release. As we’ve seen above there’s lots of different factors which can determine the best equity release scheme for you. Ideally, you need to have a full in depth discussion with an adviser to work out the best plan for you.

 

 

Should you wish to arrange a no obligation chat to discuss which is the best equity release for you please contact Mark Rumney DipPFS CeMAP on: – 07957 974826 or email me at markrumney@equityreleasesupermarket.co.uk

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