The costs that build up over time with an equity release plan could be significant, with some initial charges too.
Before you decide that equity release is the right choice for you it’s important that you understand the costs involved. Below is an overview of the costs involved in equity release that will help you to decide whether it’s the right choice for you.
Under the terms of your Lifetime Mortgage, the rate of interest that will be charged on your loan will either be fixed or variable.
Fixed Rate
If the rate of interest is fixed it will be fixed each time you withdraw funds from your plan.
Over time, therefore, you could have several amounts of money which you have released at different times, and each would be subject to a different fixed rate of interest, which would then be added to the total amount which you have borrowed
Variable Rate
If the rate of interest is variable there will be a “cap” (upper limit) on the amount that can be charged at any time.
You will not have to repay any of this money until your property is sold, your equity release plan comes to an end, or you choose to repay the loan.
Will there be any upfront costs?
When you take out an equity release plan there will commonly be initial fees that need to be settled straight away. These fees cover the setting up of the plan you have chosen and will be payable to:
- The Provider which is financing your plan. These may be described as “application” or “administration” fees
- Your Adviser, who will carry out detailed research into the options and recommend the most suitable plan from the range available, followed with a written report containing recommendations and a personalised Key Facts Illustration (KFI).
- Your Solicitor, for giving you independent advice on the plan to help you understand how it will work, and for carrying out the necessary conveyancing (legal) work; and
- The surveyor (valuer) who will inspect your property in order to give the provider an independent estimate of its value at the time you take out the plan.
All firms work differently and most treat each equity release case individually, so there will often be payment structures that don’t require you to pay fees in all of these areas, or that include a cash-back offer.
As with any financial product the most important thing is the research you do before hand.
The levels of fees may vary between firms but products will vary too, so finding the cheapest does not always mean getting the best value.
Speaking with someone who understands the industry is highly advised before moving forward with equity release.
So, what’s your next step towards releasing equity?
Information gathered from the Equity Release Council.