If you have been thinking about unlocking cash from your home, you may be wondering how much does equity release cost?
In this blog we outline the different fees and interest that you can expect to pay when taking out an equity release plan.
About Equity Release
Historically there has been a stigma attached to equity release, however it has soared in popularity in recent years.
For many people, their home is their biggest financial asset, and more and more people are considering how to use their property wealth during later life.
Many people do not have sufficient savings to support them throughout retirement and equity release can provide much needed income. It is becoming a mainstream financial product and is playing a vital role in later life financial planning.
The costs of equity release can be split into two areas: the advice fees and the interest.
How much interest do you pay on equity release?
Approximately 10 years ago the average equity release fixed interest rate was around 7%. As demand from borrowers and competition among lenders has increased, rates have fallen.
The average equity release fixed interest rate across all lifetime mortgages is currently the lowest it has ever been at around 3%. Although, the interest rate that you secure will depend on your individual circumstances and the products available to you based on your criteria.
The total amount of interest that is added to your loan will depend on how much you borrow, when you release the funds and how long your lifetime mortgage runs for.
After you have taken out your equity release plan, you don’t have to pay a penny until you sell your home, pass away, or move into long term care. You are not obliged to make any repayments if you do not wish to, however by making repayments you can avoid rolled-up interest.
What’s more, all equity release plans that are approved by the Equity Release Council come with a ‘no negative equity guarantee’. This means you will never owe more than your home is worth and so the interest will not continue to accumulate beyond the value of your home.
How much does equity release cost?
When you take out an equity release plan there are costs including legal and advice fees to consider. However, most borrowers choose to have these fees deducted from the loan amount and so they do not need to pay them upfront.
Here are the fees that can be deducted from your loan:
• Advice fees – You will need to consult a specialist equity release adviser who will research the options available to you and recommend the most suitable plan for your needs. Some advisers charge a percentage of the loan amount. At Personal Retirement Planning we charged a fixed fee regardless of how much you borrow. Your advice fee can be deducted from the loan on completion.
• Surveyor’s valuation – Your chosen equity release lender will instruct a surveyor to carry out a valuation on your property to ensure that it satisfies the lender’s requirements. Most equity release plans cover the cost of the survey. Although in some cases, you might need to pay for the survey upfront. The cost of the survey varies depending on the location, size, and value of your property. If there is a valuation fee to pay, it cannot be deducted from the loan, it would need to be paid upfront.
• Legal fees – When you take out an equity release plan you must seek legal advice to ensure that you are making a suitable decision for your financial circumstances. Your solicitor will take care of the legal paperwork and ensure that everything is in order until your funds are released. They will also carry out a home visit as part of the process and for regulation purposes, Solicitor’s fees are typically around £700 inclusive of VAT although fees can vary depending on your individual circumstances and your chosen solicitor. Your legal fees can be deducted from the loan on completion.
• Arrangement fee – The arrangement fee for an equity release plan is similar to the product fee you pay when you take out a regular mortgage. Most equity release lenders do not charge an arrangement fee. However, some plans do have an arrangement fee which could be a percentage of your loan amount, or a fixed fee, usually £599. It usually covers the costs to set up your plan and your lender’s legal costs. If there is an arrangement fee, it can be deducted from the loan.
These equity release costs are for guidance only and vary depending on your individual circumstances. To understand your options and to find out how much equity release costs for you, please call us on 07980 210953.
The team at Personal Retirement Planning are specialist equity release advisers. We are members of the Equity Release Council and can help you to decide whether equity release is right for you.