Could switching your equity release plan save you tens of thousands of pounds?

OLDER borrowers are benefiting from increased choice of equity release plans that let them release tax-free cash from the value of their home.

It’s not just new borrowers who can take advantage though.

Homeowners who have already taken out equity release loans could save money by reviewing their plan and moving to cheaper and more flexible deals.

An equity release loan lets older homeowners, aged 55 or over, access cash locked up in the value of their property.

The most common type of equity release is a lifetime mortgage.

Borrowers can usually release as little as £10,000 and as much as 58% of the value of their property.

It can help boost your pension income, which can be beneficial amid concerns about the rising cost of living – with higher costs for energy, food and clothes.

The money you access is tax-free, so you don’t have to worry about a bill from HMRC.

This is a loan secured on the value of your home but unlike a traditional mortgage, the interest and repayments are rolled up and only have to be repaid if you move into care or by your loved ones once you die.

See how much tax-free cash you could access from the value of your property with Age Partnership’s equity release calculator. 

Borrowers don’t have to settle for the first plan they take out though, and could save their loved one’s money in the future by regularly reviewing their deal with a regulated equity release adviser and switching if they can save money.

Matt Stirland, executive director of equity release switching and premier client at Age Partnership, said: “Over recent years equity release plans have developed to offer so many flexible options for clients. There has also been a substantial drop in rates, which can save people vast amounts of money over the life of their loan.

“The new plans offer flexible repayment options, a range of ways for people to access the money that they release and defined early repayments charges, so there are no unexpected surprises. 

“There will be people out there who aren’t aware that they could potentially move their plan and make use of some of these benefits and lower rates.”

What you need to know about switching your equity release plan

You can switch your equity release plan as you do with standard mortgages, but you will need to have had your existing plan for at least 12 months.

Analysis by equity release broker Age Partnership shows there are now 698 plans available, up from 383 in 2019.

That 82% increase in competition has also helped push equity release rates down and some providers have introduced added flexibility such as letting borrowers make voluntary repayments or move home while keeping the loan.

Some deals also now let borrowers draw down partial sums rather than the full amount, which means you save money by only paying interest on the amount you have accessed.

Over the past five years, average interest rates have decreased from 6.06% to 3.26%, according to Age Partnership.

That means borrowers could almost halve the interest being applied and rolled up into their equity release loan.

You can find out how much money you could get with Age Partnership’s equity release calculator.

Is switching equity release plans right for everyone?

For some, changing plans might not be the right thing for them at the current time, but it is still worth keeping an eye on the market in case better deals and plan terms emerge.

Age Partnership says one of the most common reasons that people aren’t able to change is that the loan-to-value (LTV) ratio is too high. 

Another major factor is the early repayment charges (ERC) on the original loan. 

An ERC, or exit fee, for ending your current deal and switching to a new one may outweigh any benefits of switching especially in the early years of the loan.

A specialist equity release adviser will be able to check the costs of your current plan and compare with any new rates to see if it is worth switching.

How to switch your equity release plan?

Brokers such as Age Partnership offer free reviews to find out if changing plans is an option. 

Check if your adviser is whole of the market, so you get the best choice, otherwise they may be restricted to a few lenders.

The adviser will check if you qualify for the latest plan developments and will look at the amount outstanding on your equity release plan including any interest that has accrued. 

They will also consider any potential ERCs that may be applicable. 

The adviser will explain that the lifetime mortgage is secured against your home and that the loan, plus the interest, will be repaid once you die or move into long-term care. 

As part of the free quotation they will provide you with a personalised illustration to explain all of the features as well as the risks involved.

What are the risks?

There are risks with equity release.

The extra cash will boost your income, which can affect your entitlement to benefits such as Pension Credit.

Additionally, the debt will need to be settled once you move into care or pass away.

This may mean selling the family home. 

Some plans will let you reserve a portion of the proceeds of the sale of the property for an inheritance but it is important to inform your loved ones of your plans to avoid any disputes.

It is a regulatory requirement that borrowers get advice from a regulated equity release adviser before taking out this product so they understand all the risks and can weigh up the benefits.

Age Partnership’s equity release calculator is a good place to start so you know how much money you could access and you can then get in touch with an adviser to find out more.

Age Partnership provide initial advice for free and without obligation. Only if you choose to proceed and your case completes would a typical fee of £1,795 be payable.

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