Before you take out a lifetime mortgage, be aware that there are many equity release leads costs.
You should consider fees and costs before proceeding with equity release. These costs may be incurred when you sign up for a plan, or if you receive advice. Being aware of these expenses can help you avoid surprises.
This article explores the costs associated with equity release and asks the question: “How much does it cost?”
What is the cost of releasing equity?
There will be fees associated with setting up your loan, just like a traditional mortgage. These fees should be considered and included in your decision-making process when deciding how to get tax-free cash after the age of 55.
Common Equity release leads costs include:
1. Consultation fees
Receiving qualified advice is an important part of the equity release process. To access an adviser’s services, you will need to contact a broker. To keep the cost of equity release down, many advisers will charge a percentage of the amount they have released. You might consider a broker who caps their fees.
You can usually add your fees to the amount you release. This will however mean that interest will added to the amount.
2. Interest rates
You don’t have to pay monthly payments if you release equity through the most popular product, a life-long mortgage. Instead, the interest will accrue over time and the entire amount is due to repaid when the homeowner dies or moves into permanent long-term care.
It is important to take into account the impact of interest rates on equity release leads costs. The longer the interest rate is, the higher your owings could increase over time.
3. Repayment fees
You should consider the potential early repayment fees if you plan to repay any equity you have released in the future. These fees can be costly, so talk to an advisor about your plans. They can assist you in evaluating equity release products that have fixed and clearly defined early repayment fees or other financial options.
Recently, the Equity Release Council required that you have compliant plans in order to be able to make partial repayments without any penalties. It is wise to verify whether this will help to minimize charges.
4. Tax
You will not have to pay tax on equity you release because it is a loan, and not income. And you should consider whether taxes will be due on how you use the money. You might be subject to Inheritance Tax liabilities if you give money.
5. Application fees
Some fees may be incurred when applying for an equity release product, including valuation fees, solicitor’s fee and lender’s fee. An equity release advisor will take all of these into account and explain them to you before you submit an application.
How can you lower the cost of equity releases?
Compounded interest can have a significant impact on your equity release fees and costs. There are many other features that you may be able to take advantage of, such as:
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The loan can repaid without any early repayment charges if the customer decides to downsize.
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Customers can make partial or full interest payments with some products
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Repayments on loans You will be allowed to pay part of the loan repayments without penalty. These repayments can vary in size depending on the lender.
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Drawdown reserve A drawdown life mortgage allows you to release a initial amount of money and then create a reserve account with additional funds that can later drawn down. The reserve account is free from interest until it is release. This is another way to manage compounding interest. Important to remember that your initial release may have a higher or lower prevailing rate, so the amount you draw down will be at the current rate.
The Equity Release Council (ERC), a trade association for the industry, has established a set standards that its members must follow. These standards can help you understand the cost of equity release.
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Fixed interest rates Lenders that are members must either offer fixed interest rates for life or have a maximum rate that is variable. To show how your debt will change over time, your adviser can provide a personalized illustration.
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No negative equity guarantee The cost of releasing equity won’t affected by changes in house prices.
Get some advice
The advice stage is important because it helps you to understand the costs of equity release as well as to decide if a different form of borrowing might be better for you.
When considering equity release costs, it is important to weigh your future and current needs. The value of your estate will decrease if equity is take out of your home. Also, a lump-sum cash payment could reduce your entitlement to benefits that are means-test.
Market leaders Responsible Equity Release can provide access to high-quality advice for anyone considering equity release.
Get started today on your equity release journey
This page contains the Mortgage Brokers Directory (MBD), release calculator. To get start, simply enter your age and estimate house value.
This will provide you with an estimate of how much tax-free cash you could release. Responsible Equity Release will contact you with no obligation to set up an appointment with one their highly qualified advisors if you give your telephone number.
