Releasing equity in your home can be a useful way of freeing up cash for a number of things, but how much will it cost? From set up fees to the long-term costs, our experts have answered some of the most often-asked questions regarding how much equity release costs and how this might be affected depending on your plan.
What is Equity Release?
Equity release allows homeowners to release the cash tied up in their property through a loan secured against your home or selling part, or all, of your home without the need to move. This can be a useful option for those who want to supplement their retirement income, pay off debts, or fund home improvements.
The types of equity release
There are two main types of equity release: lifetime mortgages and home reversion schemes.
Lifetime mortgages
This type of equity release allows you to borrow a lump sum or regular payments from the value of your property, while still retaining ownership of the property. The loan is secured against the property and is typically repaid when the property is sold, usually after the homeowner has passed away or moved into long-term care. Lifetime mortgage interest rates can vary, so it is important to compare different equity release products to find the best deal.
Home reversion schemes
This type of equity release involves selling a percentage of your property to a home reversion company in exchange for a lump sum or regular payments. You will still retain ownership of the remaining percentage of the property, but you will not have control over the percentage that has been sold. This option can be less flexible than a lifetime mortgage, but it may be suitable for some homeowners depending on their circumstances.
How much does it cost to set up equity release?
The cost of equity release will vary depending on which provider you use, which company provides your advice, and what solicitors are involved. Some of the main equity release fees associated with equity release and lifetime mortgages are:
- Arrangement fee: Also known as an application fee, this is the price charged by providers to set up the equity release process. The arrangement fee is charged by the lender for setting up the equity release plan. The arrangement fee can differ depending on the provider and the complexity of the plan, and in some cases be provided free of charge.
- Legal fees: A specialist solicitor is needed for the process and will be your conduit between the provider and yourself, supporting in the legal aspects of equity release. Solicitor’s fees will vary depending on which firm you choose to proceed with and would be due to be paid upon completion.
- Valuation fee: This is a fee charged by the lender for valuing your property and can depend on the value and location of your home. Not all lenders will charge a valuation fee and most offer a free valuation on the initial application. Lender’s fees differ for each provider.
- Advice fee: This is a fee charged by the equity release adviser for providing advice on the best equity release plan for your circumstances. There are several types of advice provided by companies which are either tied, panel, whole of market, or whole of market including home reversion plans. It is important to check which advice you are receiving and to seek advice from a qualified equity release adviser to ensure you are making the best decision for your financial future. It is a Financial Conduct Authority (FCA) requirement that you take advice for equity release.
These fees can vary between lenders and equity release plans, for a full breakdown of how much equity may cost you, speak to an equity release adviser.
It is essential to consider the equity release fees carefully before taking out an equity release plan. It is also important to seek advice from a qualified adviser to ensure that you are getting the best deal for your circumstances.
How much do solicitors charge for equity release?
As mentioned above, hiring a specialist solicitor is an important part of the process as they will act on your behalf and ensure all the legal implications are considered before you sign on the dotted line. The costs can vary considerably, which is why it is vital to shop around and look for various quotes before you come to a decision; typically, costs will run into the hundreds.
At Bower Home Finance, we have a panel of solicitors so we can monitor for quality control. Whilst we recommend the solicitors in our panel, we remain completely independent and each of our customers are given the choice to use a solicitor of their choosing, so you remain in control from start to finish. The solicitor acts solely for the customer, remaining independent of Bower throughout the application process.
Why do you need equity release advice?
Equity release advice can help you understand the risks, features and implications on your estate and current circumstances. It is a legal requirement to receive independent legal advice before signing into an equity release agreement.
Your equity release adviser can not only explain the implications but help you find the best option for your circumstances whilst answering any questions you might have along the way.
Before choosing to an adviser, we recommend you compare advisers in your area including the type of advice you will be receiving and the fees associated with it.
How much does equity release advice cost?
As with all costs associated with equity release, advice fees vary a great deal depending on your adviser and the service they offer. Each adviser should give you an upfront breakdown of any costs and the implications on your circumstances.
At Bower Home Finance, we’ll offer whole of market advice in addition to home reversion products, and we will always discuss any fees with you from the start. We offer no obligation advice which means if you change your mind or your circumstances change, you can withdraw at any time at no cost to you.
Understanding the types of advice available
When comparing equity release advisers, knowing what you’re looking for can save you a lot of time. This can include the type of advice you’re looking for and the fees associated with the advice.
The three main types of advice are panel, tied and whole of market, but what does this mean?
Tied advice
‘Tied advice’ as suggested by the name, means the adviser is tied to one specific lender. This means you will only be offered advice on the specific products offered by that single lender.
Panel advice
‘Panel advice’ will limit the options available to your adviser as they are tied to a few selected providers. Panel advice isn’t inherently bad; however, it means if there is a more suitable option across the market, you may not be offered it if it is not part of the panel.
Whole of market advice
‘Whole of market’ means your adviser can search the whole of the market without being obliged to choose from specific providers. If your equity release adviser is whole of market, they will compare every product available to find the best one that suits your circumstances. Bower Home Finance offers whole of market and home reversion advice.
The alternatives of equity release
During your no-obligation appointment with one of our advisers, we will discuss the alternatives to equity release with you, so you can explore all options before committing to a lifetime mortgage or home reversion plan.
These alternatives can include:
- Downsizing to a different property
- Releasing cash from other assets
- Moving to a different mortgage
Learn more about the alternatives of equity release.
The long-term cost of equity release
Whilst equity release has some initial up fees, there are some long-term costs including the interest charged on the loan which will have an impact on your estate and the inheritance you leave to your family and friends.
Your adviser will discuss in detail the long-term costs and implications of equity release, and how this will impact your circumstances.
How is the interest on my equity release calculated?
When it comes to the range of equity release products available, it is no surprise that some lenders will use different methods when calculating the interest on your loan.
From annual equivalent rate to monthly equivalent rate and annual percentage rate, our advisers will explain what this means for you and your circumstances.
How much interest will I pay on my equity release?
Equity release interest is the interest charged on the loan amount borrowed. The interest rate can range depending on the lender and the type of equity release plan. The interest is typically added to the loan amount, meaning you don’t have to make monthly payments unless you choose to.
The equity release interest charged on your loan varies depending on the type of plan you opt for as well as the length of time the loan runs for.
What is the typical equity release interest rate for a lifetime mortgage?
Equity release interest rates will differ depending on the provider and the homeowner’s circumstances including age, loan-to-value, location and the construction type of the property, so it is hard to give an exact figure.
Interest rates can affect the amount of compound interest that you pay when you pass away or move into long-term care.
Get started by comparing interest rates and lenders from across the market.
It is best to speak with an advisor when you are ready to look into Equity Release to get the latest numbers.
Reducing the cost of equity release
Reducing the cost of equity release plans can help you maximise the benefits while minimising the financial impact over time. If you’re looking to reduce the cost of equity release, reducing the amount of interest you’ll need to pay is one way to do this.
Using a drawdown facility
Using a drawdown facility means you’ll receive your initial lump sum and can release more money as and when you need it in the future. This can allow you to withdraw funds as needed, so you only pay interest on the amount you release, reducing compounding interest costs.
Making payments towards the interest
Interest accrues on the amount you release gradually, however if you choose to make monthly payments or partial interest-only payments, this can help minimise the amount you’ll need to repay at a later date when your plan completes. If you plan to make partial or monthly repayments, it is important to discuss this with a qualified equity release adviser so you can understand any potential early repayment charges.
Changing your existing plan
If you have an existing equity release loan, remortgaging to another equity release product in the future may also help save you money if there is a better plan with a lower interest rate in the future. You may be subject to early repayment charges, so we recommend you seek independent advice from a qualified whole of market adviser who can discuss your options and advise you of any costs involved.
Not taking the maximum amount
When it comes to equity release, only releasing the amount you need can save you money in the long run in comparison to releasing more than you need.
Our advisers will discuss how much cash you want to release and how you might plan to use it, helping you justify if it is necessary and if you will receive a more beneficial interest rate and accrue a lower amount of interest in comparison to a larger lump sum.
Bower Home Finance: Expert advice tailored to you
At Bower Home Finance, we’re here to help you make an informed decision by taking into consideration your personal circumstances, the impact equity release may have on any means tested benefits, and how equity release might affect you if your circumstances change.
We offer whole of market advice, with no obligation advice, so you can change your mind at any time at no cost. Get started today and find out how much tax-free cash you could release from your home with our free equity release calculator.
