Is Equity Release Right for Me?

By Mark Gregory on January 5th, 2013

question markEquity release is fast becoming a popular option for homeowners who want to raise cash without having to sell their property. While there are different types of equity release schemes, essentially they all release some of the equity tied up in the property and only repaying it only once the house is sold.

 

However, how do we determine whether now is the right time to apply for an equity release plan?

 

There are a number of factors that collectively make the picture clearer. However, it is by discussing all these issues with an experienced and independent financial adviser that an impartial decision from the adviser can help. The following are all factors that will need to be taken into account.

 

 

 

Equity release qualifying criteria

Primarily, there must be a financial need and the right criteria must be met in order to qualify. Therefore, the applicants must both be over 55 to start with. The older you are, the higher the potential release can be. Subsequently, an important decision to make from the outset is could we wait for a few years when a higher amount is available? This effectively will be answered by the urgency of the finance required.

 

Secondly, the property is another determinant as to whether qualification for an equity release mortgage is acceptable. The property itself should be of standard construction; however certain non-standard build-types are acceptable subject to valuer approval. This could be concrete block, or timber frame, albeit the properties should usually be of a recent build, Another condition equity release schemes demand is a minimum property valuation of £70,000 and if its a leasehold property there needs to be at least 75 years remaining.

 

How to choose the right equity release scheme

Equity release schemes differ in their terms of lending and repayment, and each scheme has its own pros and cons. For instance, a lifetime mortgage equity release scheme on a roll-up basis allows you to borrow money either as a lump sum or in instalments. It is finally repaid, along with the compounded interest when the property is sold, without the need to make monthly repayments. However, this generally means that the amount to be repaid is quite vast and ends up devaluing the net equity remaining for the beneficiaries when it is sold.

 

A home reversion plan, on the other hand, entails selling a percentage of the property rights to the home reversion provider. The provider then recovers the same percentage at the end of the term and when the property is sold. This remaining percentage is a guarantee for the beneficiaries that they will definitely receive. Any growth in the value of the property is of course taken into consideration and the proportional amount is recovered. Home reversion plans, too, have their own advantages and disadvantages and their suitability depends upon individual circumstances such as a minimum age of 65.

 

There are other schemes such as home income plans which allow you to borrow money against the property and pay out a monthly annuity based on your circumstances. While the amount borrowed remains constant, the interest is deducted from the annuity payment, so the amount of annuity is essentially reduced. This type of equity release can therefore be suitable for those around 80 years of age and above.

 

Equity release schemes can suit a variety of people, as it allows you to borrow money either in the form of a lump sum or via instalments from a drawdown facility that can be created with some equity release schemes. So, for instance, a drawdown lifetime mortgage scheme could be useful for those who do not initially need a large capital amount, but may need top-ups to supplement their lifestyle in the future. This would be valuable for those who need a lump sum of cash for one-off expenditures such as home repair works, an extension, holidays and equally useful for those who need to supplement their monthly income, while continuing living in their own property.

 

What to do next

To establish whether ‘equity release is right for me’ then call Compare Equity Release on 0800 678 5169, where our experienced team of equity release advisers are waiting to assist.

 

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.

How Will New FSA Reforms Affect Equity Release Schemes?

By Mark Gregory on November 29th, 2012

SecurityHouse

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 mail@compareequityrelease.com

Is Lending into Retirement Still a Social Taboo?

By Mark Gregory on November 1st, 2012

gambling-chipsThere are equity release mortgages in the market that are aimed specifically at the elderly generation. Schemes such as the now withdrawn, but very popular Halifax Retirement Home Plan mortgage to other lifetime equity release mortgages offered today, there is becoming a shortage of products available for borrowing into retirement. This represents an inverse relationship owing to the fact that a demand for financial lending solutions during retirement is growing significantly.

 

How times have changed.

 

There was a time when the notion of having a mortgage during retirement was considered taboo and there was much stigma attached to it. If one had a mortgage during retirement, it was not something that you would want other people to know. Even when equity release products were just beginning to enter the market, the attitudes toward borrowing during retirement were drastically different to the way they are today. People would not discuss the topic. Instead neighbours and friends alike were left to question how their lifestyles had suddenly changed; buying that new car or round the world cruise!

 

Today, the borrowing culture has pervaded all sections of society. People are willing and more open to carrying their mortgages and borrowing from pre-retirement into retirement. The fact is that owing to several social factors, many of us are left with no choice but to embrace the culture of mortgages and loans even during retirement. A rise in broken marriages before retirement and a higher divorce rate post retirement are creating these issues. Amongst the credit crunch and recent recession there has been an increase in redundancies and rising health concerns among society that are all partly responsible in creating a genuine need for financial equity release solutions for the elderly.

 

People are more open today in acknowledging the need for financial borrowing during retirement. Attitudes have certainly changed over the years and people have come to realise that post retirement mortgages may become increasingly necessary.

 

Why not?

 

As it is, pensioners have a more stable income than people in employment, and as long as repayments can be managed from the pensionable income, retirement mortgages should not be written off without fair consideration.

 

So why all the fuss from the FSA?

The FSA has taken a firm stance on the subject of retirement mortgages by limiting the maximum age one can have a mortgage over. Also retirement interest only mortgages are major headlines at present with some mainstream mortgage lenders such as Nationwide point blank refusing to accept any form of new interest only mortgages.

 

The FSA has evidenced the volume of interest only mortgages that have been taken out of the past decade. With the levels of these mortgages having NO repayment vehicles the FSA have come down heavily foreseeing the future issues this is bound to create. Couple this with the potential for interest rates increasing sometime in the future and it could be a recipe for financial disaster at a time when the market is fragile enough.

 

There are some niche plans available in the market aimed at the post retirement market, and are specifically designed to meet their needs. Mortgages such as Stonehaven interest only mortgage scheme are a good alternative to the much sought after Halifax interest only mortgage. The popularity of the Halifax equity release scheme was vast when it entered the market, however the gap it left in the market after it pulled out was quite telling. It proved conclusively that there is a need for lending solutions aimed at well informed and financially savvy pensioners, who wish to find optimum ways to utilise their assets, while also protecting their life savings and ultimately their beneficiaries.

 

To discuss your pensioner mortgage requirements, contact the Compare Equity Release team on 0800 678 5169 or email mark@compareequityrelease.com

 

Is it Possible to Switch my Current Equity Release Plan?

By Mark Gregory on October 21st, 2012

 

switch-equity-releaseThe 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.

 

What are the advantages of switching plans?

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.

 

How do I know whether to switch plans?

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 CompareEquityRelease.com Switch Plans 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 team on FREEPHONE 0800 678 5169 today.

5 Essentials to Bear in Mind When You Compare Equity Release Schemes

By Mark Gregory on October 20th, 2012

Equity Release Dice

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 advisers 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 advisers. 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.

How Do I Pay Off My Equity Release Plan?

By Mark Gregory on October 2nd, 2012

extra-arrowEquity release exists in different forms and consequently they can be repaid in different ways. There are two main types of equity release schemes that exist today which are the lifetime mortgage and home reversion plan. With lifetime mortgages nowadays accounting for over 98% of all equity release applications, there are more variants on this theme than the home reversion plan.

 

Here we discuss the repayments options available on both of these equity release schemes.

 

 

 

 

Principle’s first

Both of these equity release schemes are designed to run for the rest of one’s life and it is important to remember that if premature redemption arises, then the lender can penalise you by way of early repayment charges.

 

Lifetime mortgage schemes embrace plans such as the drawdown schemes, interest only lifetime mortgages and the maximum cash release plans. To understand how these can be paid off, we need to understand the principles behind the lifetime mortgage plans which will allow us to assess how these schemes can be redeemed.

 

In essence, all lifetime mortgages allow you to free up some of the equity built up within your property, without the need to move out of the house. It allows you to continue living in the property, but free up some of the equity contained within and use the funds to enhance one’s lifestyle or help the family in times of need.

 

The difference between the lifetime mortgage and the home reversion plans lies in the ownership of the property and this has a large bearing on how easy redemption of these schemes can be.

 

How does a lifetime mortgage work?

A roll-up lifetime mortgage is simply a mortgage taken out on the property, but usually has NO monthly payments. The interest is generated on the loan by the lender either by compounding it on a monthly or annual basis. Obviously, with an equity release mortgage compounding on a monthly basis, it will result in the debt growing much quicker than one compounding annually as the interest being charged more frequently.

 

The essential feature of lifetime mortgages that makes repayment much simpler is the fact that 100% ownership is retained by the homeowner(s). This factor alone means that repayment of a lifetime mortgage is solely down to the homeowner and whether they wish to repay, or not. There will be factors involved as to whether it would be best practice to redeem due to potential early repayment charges; however this decision is down to the homeowner alone.

 

Valid points to note

Now we know how lifetime mortgage schemes work, we can now understand how they can be paid off. As stated previously, these schemes are designed to run for the rest of your life. Therefore, standard rules apply for repayment under normal situations if the following occur: –

 

1.   death of the borrower (or death of the second borrower if a joint lifetime mortgage plan)

2.   moving into permanent long term care (or the second borrower moving into long term care if a joint lifetime mortgage plan)

 

At this point, the executors of the estate will have upto 12 months to repay the lifetime mortgage. This is normally achieved by sale of the property; however it doesn’t necessarily have to be the case. This is an area many people do not consider and is a point we raise with all our clients.

In some situations the beneficiary may wish to retain the property for personal or commercial reasons. However, the lifetime mortgage still needs to be repaid. Therefore, the beneficiary could raise their own finance on the property upon transfer of the equity.

 

This could be by way of buy-to-let mortgage if the property is to be rented out, or from a remortgage of their own main residence to raise the cash, in order to redeem the equity release plan. With today’s buoyant rental market, a buy-to-let remortgage could be a viable option then selling. This is especially so, given the poor state of the residential property market and trying to achieve a good sale price today. So why not defer the sale by taking over the ownership of the property if possible, and use for your own, or families benefit if practicality exists.

 

Win the lottery?

Another factor that could determine redemption of a lifetime mortgage would be if a windfall is received such as an inheritance or even winning on the lottery! Even downsizing properties would raise a cash lump sum which can then be utilised in repaying an equity release scheme. The question is however, whether repayment should go ahead?

 

This will depend on early repayment charges applied to the scheme from inception. As different lifetime mortgage companies levy these charges in different ways, it is always best to request a redemption statement from the lender. This will quantify exactly how much of a penalty, if any exists. Only at that point should a decision be made and this will be down solely to personal or financial reasons. For this reason you should always discuss this with family, but more importantly with your equity release adviser as there maybe ways around the penalty. For instance, there may be a case of possibly deferring repayment if certain events maybe on the horizon which mean the situation could be different in the future.

 

Home reversion is different

Home reversion plans were designed to enable someone to sell a part, or all of the value of the house in return for a tax free cash lump sum provided by the reversion company.

 

Therefore, with home reversion schemes you partly own the property. Dependent upon the percentage sold, you still have guaranteed equity remaining for yourself or beneficiaries in the future. Conversely, if you have sold 100% of the property value, you have no equity remaining and therefore have no further options other than living there for the rest of your life with the benefit of the lifetime tenancy.

 

Due to the mechanics of the reversion scheme they do not necessarily apply any early repayment charge. However, if you wish to ‘buy back’ the share you had previously sold then this may be possible. However, you would be buying back at today’s prices rather than the price you sold the equity share at originally. This may be good, or bad news dependent upon how the property market has changed in the meantime.

 

Again, a home reversion loan is essentially repaid when the house is sold, which is usually on death or long term care. Therefore, upon eventual sale of the property on death or long term care, the beneficiaries will be repaid the percentage of retained ownership, from the sale proceeds.

 

There are many factors that can influence repayment of an equity release scheme. If you are unsure on your options then contact Compare Equity Release to ascertain your options and get independent advice.

 

Compare Equity Release advisers are available 7 days a week on 0800 678 5169 or you can email us at admin@compareequityrelease.com. Feel free to contact us anytime.

Do I Need to Change My Will if Take Out Equity Release?

By Mark Gregory on September 2nd, 2012

 

The answer is not necessarily, as your Will deals with your residual estate once the equity release company has been paid from the proceeds of the sale of the home.

Therefore, your wishes can still be executed, however the amounts involved could be significantly affected if a roll-up lifetime mortgage or home reversion scheme has been taken out.

 

Equity release plans come in different formats and there is a variety of lenders that offer these equity release schemes. However, all equity release plans essentially allow you to turn the equity built up in your property into usable cash, and therefore do affect the final sale value of your property – your legacy.

 

How does a Will work?

If your Will leaves particular sums of money to individuals, and if these sums are based on the value of your home, it may become necessary to amend your Will. This is because once the debt has been repaid to the equity release lender, not enough equity may be left in the property to fulfil your monetary wishes. In this case, your will may not be effective and potentially could leave minimal amounts of inheritance for your beneficiaries.

 

On the other hand, if your will states percentages of money as opposed to specific sums, this can be achieved irrespective of how much equity remains in your house. In such a case, it may not be necessary to change or review your will because you have released equity on your home. The percentages would effectively scale down the size of the legacy in monetary terms due to the equity release mortgage, however all parties concerned will still receive some monetary value. Again the size of the inheritance would be determined by how much had originally been borrowed, how long the equity release scheme had run for & the interest rate the plan was fixed at.

 

Can gifting help?

A situation where it may be advisable to change a will due to an equity release is if you’re releasing equity to help a particular family member. Releasing equity affects the value of the house and therefore the legacy that you will leave behind. In this light, you may want to review your Will, bearing in mind the fact that you will be releasing equity on your home to help one particular individual and that this will have implications for the rest of your family.

If you are looking to equalise your final inheritance, by gifting to one child and not the others at the same time, it can leave an awkward financial decision to have to make. Given that the equity release mortgage will increase in size, this effectively is having an adverse effect on the equity within the house and with it the remaining children’s inheritance.

 

So how can this be compensated for?

Well one solution is if you do need to release equity to help your children then consider an interest only lifetime mortgage. Here, by paying off the interest each month will result in a level balance throughout the life of the mortgage. In essence this therefore consolidates the equity within the property and with it the children’s inheritance. Companies such as Stonehaven and Hodge Lifetime can certainly assist with this scenario.

Another option with some of the providers now is to build into your plan an inheritance guarantee. This option will allow you to ring fence a percentage of the value of the house for when it is eventually sold. This can therefore protect some of the inheritance and you can determine how much that percentage can be. Providers here are Stonehaven, Aviva, more2life & Partnership.

 

Reviewing a Will

A will may need to be reviewed for other reasons not directly related to equity release. These may include a death in the family, a separation or divorce, remarriage or cohabitation with someone who you would like to include in your Will and many others. A Will comes into effect only after you have died but cannot be used if you’re too frail or ill to handle your own financial affairs.

 

A Lasting Power of Attorney is a document that gives an appointed individual or party the authority to handle your finances in the case of accident, injury or illness whereby you may be incapacitated. Solicitors can draw up Wills and Powers of Attorney. Solicitors with expertise in equity release schemes may be in a good position to advice you on any equity release related revision or rewriting of your will or adding a codicil.

 

For matters relating to inheritance and the effect that equity release schemes can have on your estate, contact the Compare Equity Release team on 0800 678 5169 or email mark@compareequityrelease.com.

Am I Eligible for an Equity Release Scheme if I Still Have a Mortgage?

By Mark Gregory on August 12th, 2012

small_housepuzzle

Compare Equity Release seek to clarify equity release providers stance on whether people with an existing residential mortgagors can still take out an equity release plan. This is an increasing common question our customers ask & whose answer can vary depending on individuals personal circumstances.

 

Evidence is showing that equity release schemes are becoming the selected choice of finance for those in retirement who need an additional income, or a capital lump sum for certain specific goals. Granted it may not be suitable, nor preferred by everyone, and that is why independent equity release advice must always be obtained first. However, with the meteoric rise in equity release popularity & equity release news worthiness, it may worth spending some time to see what all the fuss is about & how lifetime mortgages can actually assist retirees to improve their standard of living during the post retirement period, with or without a mortgage.

 

Equity release or lifetime mortgage?

Equity Release is the generic term applied to all forms of finance that allows people over the age of 55 to release tax free cash from their main residence. Equity release schemes encompass both lifetime mortgage schemes & home reversion plans. In essence, they all allow you to release the equity built into your home and use it as a supplementary income or have a cash lump sum. Equity can be released as a single lump sum or more flexibly it can now be taken in instalments by what is called a Drawdown Lifetime Mortgage. A detailed explanation of drawdown schemes can be found here. In fact, there is an ever increasing broader horizon of equity release plans available in today’s marketplace.

 

What is the eligibility for an equity release mortgage?

If you already have an existing mortgage on your home, the following information could be useful in explaining the equity release options available to you.

 

The purpose of equity release is to allow you to cash in some of the value built into your property, and as such, it is possible to do this even when you have an outstanding mortgage on the property. More people are now reaching retirement with a mortgage still in force. With reasons for this ranging from poorly performing investments such as ISA’s or Low Cost Endowments, interest only mortgages with no repayment strategy, all manner of people are facing a big decision – How Do I Clear My Mortgage to Take out an Equity Release Plan?

 

Most equity release lenders will allow you to remortgage the property under their terms and rates; over age 55, homeowners in the UK. However, the new terms would need to be on a lifetime mortgage basis, not on a fixed term, as previous. In the lifetime mortgage providers terms and conditions it will usually state that the proposed lifetime mortgage can be the only secured mortgage on the property. This makes particular sense for any lender thinking of taking a second charge, thus ranking behind the equity release company in terms of ultimate repayment of the debt.

 

Given that a lifetime mortgage is essential a roll-up mortgage and no monthly payments are involved, consequently the interest compounds each year escalating as a result. Medical science is proving that many people are living longer & will be even more so moving forward, thus the term, and resulting balance could theoretically with longevity, reach the value of the property. Therefore, should a second charge be present, the lender in this scenario could have no security left. The reason being that all the equity would be due to be paid over the equity release company with the first legal charge, upon death or moving into long term care.

 

Under such scenarios, the new equity release company would insist the only charge present is theirs & any existing charge prior to application, must be extinguished. To complete this task the residential mortgage would need to be repaid from one’s own funds such as savings, or upon completion & repaid from the proceeds of the new equity release mortgage. The latter tends to be the most popular route for repayment.

 

Finer details on the process

To calculate whether a particular equity release remortgage will work for you, it is necessary to consider three factors: –

 

  1. The outstanding residential mortgage balance,
  2. the age of the youngest applicant
  3. & most importantly – the value of the property.

 

Set up costs for a new mortgage against the potential savings offered by any new mortgage can play an important role also. This will allow you to work out the breakeven point, and calculate how much you could save over the long term. Some equity release comparison sites offer an equity release calculator tool that can help you with this.

 

Ensure you employ the services of an equity release adviser & the assessment can then be made professionally for you. Whether you have an existing residential mortgage or even a lifetime mortgage, the process & principle’s are the same.

 

Many factors come into play when choosing equity release mortgages. As competition has grown, the market has become more favourable for new & existing equity release policyholders. This means that much more choice is available today than a few years ago. Therefore, if you have an existing mortgage and wish to release equity, it may not only be possible, but indeed advisable to shop around for alternate mortgages which may have better interest rates or greater flexibility than before. It may be prudent to change, however always undertake an equity release comparison & analysis first.

 

 

If you already have an existing mortgage on your property, you could still opt to release equity on your property and consolidate the loans into one. This will obviously affect the terms of repayment and may extend the time period over which you will have to repay the loan. This must always be borne in mind & will be more expensive in the long run. There are a number of online comparison sites that can help you compare different equity release mortgages, starting with Compare Equity Release who have a specially developed equity release tool that provides a switch plan analysis to assist in making that ultimate decision.

 

If you have any questions on remortgaging or switching a current mortgage that runs into retirement, over to an equity release scheme, give the Compare Equity Release team a call on 0800 678 5169 or email mark@comparequityrelease.com.

 

 

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Consider Early Repayment Charges Before Looking to Switch an Equity Release Plan

By Mark Gregory on July 29th, 2012

Equity Release Book

Many people who have an existing equity release mortgage on their home choose to explore the market for alternate options. It is possible to switch an equity release plan from one scheme to another equity release lender. However, the viability of switching depends on a number of factors, an important one being – whether your existing mortgage scheme has an early repayment charge in force still.

 

 

 

Why Do Lenders Levy Early Repayment Charges?

Early repayment charge (ERC) clauses were more common in the past than they are now. The charge is meant to protect lenders from losses due to early repayment. But today, lenders are moving away from the trend of fixed early repayment penalties, and are becoming more flexible. For instance, while Stonehaven Equity Release was the only equity release provider in the past to offer an interest only lifetime mortgage scheme, Hodge Lifetime now has a roll-up scheme that allows you to repay up to 10% of the total borrowing per year with no early repayment charge. In addition, Hodge Lifetime will allow people that downsize after five years to repay the whole equity loan with NO penalty applicable.

 

 

The amount of penalty charged for early repayment depends from lender to lender and at the time at which the repayment is made. The trend these days is for lenders to calculate ERC’s based on gilts. However, there are still a few that have fixed percentage rates, although these are becoming scarce as new products are developed.

 

 

 

How Much Can Lenders Charges As A Penalty

Early repayment charges on some schemes can go as high as 25% of the total amount that is borrowed. These tend to be the gilt related plans such as Aviva, however be aware that the pre-Aviva plans (Norwich Union) did have a 100% scale of penalties that could apply. Aviva charge a penalty dependent upon the movement of a specific government gilt. Should the gilt yield fall from the plans inception, then a penalty would apply pro rata with the drop in the gilt yield. Should the gilt yield stay the same or rise, then NO early repayment charge would be payable. With today’s current low gilt yields, this has been a good period to be taking out such equity release schemes. Therefore, careful consideration should be given from the outset as to which equity release scheme is initially selected.

 

 

Should there be any inclination that the scheme will need to be repaid in the future then it isn’t necessarily best just to go with the cheapest interest rate. The interest rate savings could be insignificant if when it comes to repayment your penalty could dwarf the initial savings made. Therefore, your equity release adviser should bear these facts in mind when providing their recommendation. Sometimes, a very high penalty may make it financially unviable to switch an equity release plan to a new one.

 

 

 

What is An Equity Release Remortgage Analysis?

Even if an existing equity release scheme has an early repayment charge, upon switching schemes it may be that after a few years of losses an alternative scheme may still help you make potentially huge savings in the long term. While comparing an existing lifetime mortgage with a new one, it is necessary to work out the breakeven point after which savings, if any, will be made. A financial adviser can be in the best position to advise you on whether you can switch an equity release plan and find viable alternatives.

 

 

The reason why many lenders are devising new equity release plans with flexible terms and no early repayment penalties is because ERC’s can make equity release an unattractive and expensive proposition for many people. There seems to be a tendency for people to prefer to repay in chunks rather than in fixed instalments over a long term. Having flexible terms of repayment can enable retirees to get the best value from an equity release mortgage. You can switch an equity release plan for a more flexible one provided your existing scheme allows it.

 

 

 

Next Steps…

Always consult an independent equity release adviser for more information and help on how to do this. Compare Equity Release offer a professional equity release remortgage analysis service that can look objectively at whether it would be worthwhile swapping equity release plans.

 

 

Call 0800 678 5169 for your FREE remortgage analysis today & see how much you could potentially save in interest…or not.

 

 

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