So, you’re considering equity release as an option. Are there any costs or fees and what are they? Here’s a guide to help you understand the costs associated with releasing equity from your home.
What fees are charged for equity release?
The costs associated with equity release are in two categories, overall plan costs, that is how much your home equity will reduce and the costs of the interest payments, and the other is with the initial set up costs of any plan.
We start with the plan costs and the two different types of plans, lifetime mortgages and home reversions. With a lifetime mortgage, interest is either paid monthly to keep the loan amount the same, or no monthly payments are made and interest is compounded on the loan amount, accumulating over time and added to the released sum. Both are repaid when the last survivor leaves the property, either because they have passed away or moved into long term care. With a home reversion plan, a percentage of equity is sold of your home and you retain the equity in the percentage not sold for a sum of money at a discounted price. You lose any potential growth in the value of the property sold but have the potential growth value of the percentage of property that is retained. The property is sold following the last person leaving the property or entering long term care, and any proceeds passed onto any beneficiaries.
Set up costs for any equity release plan may involve the following fees, an application fee with the lender, a valuation fee of your property completed by a Registered Institute Chartered Surveyor (RICS), financial advice that is required so to ensure the product is suitable, and legal conveyancing advice, to ensure you are aware of of legal implications of the plan you wish to take out. All set up costs will be disclosed to you before you enter into any plan and a whole of market adviser will be able to look at all the deals from all lenders, to ensure you have the best deal for your circumstances.
Additional charges that may occur after you have taken a plan may include, early repayment fees for repaying a lifetime mortgage early, although you can make overpayments with most plans. Charges for taking out further borrowing from your plan at a later date or remortgaging and other fees that a lender will make you aware of before taking out a plan.
How much does a solicitor charge to advise you for equity release?
Equity release solicitors fees will vary from firm-to-firm, and they can be dependent on individual factors such as your property value, and your mortgage complexity. Bower recommends that you use a solicitor that is a member of the Equity Release Council (ERC) for your conveyancing, they will be familiar with all the features of your plan and be experienced in such matters. ERC legal members can be found on the ERC website.
How much do equity release advisers charge?
Equity release advice companies fees will vary from firm-to-firm so it is a good idea to look at what services they offer. These can be dependent on individual factors such as the scope of advice and service they provide. Some companies only recommend one company that they are associated with, others have a panel of lenders, and the best option is to ensure you can access equity release deals from all lenders with a whole of market adviser, as recommended by Martin Lewis of Money Saving Expert*. As with your solicitor, it is recommended to have a financial adviser who is a member of the Equity Release Council (ERC) and adheres to their code of conduct and safeguards. Financial adviser members can be found on the ERC website.
How much is early repayment on equity release?
Home reversion plans do not have an early repayment charge because you sell a proportion of your property. With lifetime mortgages however some lenders will implement a fixed early repayment charge and others have a variable charge. Lifetime mortgage lenders have different lock in periods as you have with standard residential mortgages, that can change based on the product. It is important to speak with a whole of market adviser to ensure you take the right product for your individual circumstances. Some lifetime mortgage lenders permit an annual repayment allowance, such as 10% per annum and some allow more, without imposing any early redemption charges. Again it’s important to take advice from a whole of market advice company such as Bower to find out your options and the best plan for your circumstances.
What are the hidden costs of equity release?
Hidden charges are not permitted with any financial product that is regulated by the Financial Conduct Authority (FCA) such as equity release. However you may lose benefits by increasing your income or savings that are means-tested. Means tested benefits may be lost when taking out equity release and also you will have less money in your home for long term care that may be required. A specialist such as Bower will assess any impact of releasing equity on your means tested benefits and your estate before you go ahead with a plan so that you can make an informed decision to whether to adjust your borrowing or go ahead. It’s important to note that the funds released through this process are considered a loan, not income. Consequently, there is no requirement to declare it as part of your income but it will increase your savings.
For further information or if you have any questions, feel free to get in touch with Bower on 0808 169 8316. Alternatively, you can request a callback, send us an email, or message us through the live chat on our website.
* How equity release works and risks involved – MSE (moneysavingexpert.com)
