How much does equity release cost?

Costs

Costs of Equity Release Schemes

Take into consideration that when entering into any type of equity release scheme, there will be set-up costs and ongoing costs. These can include:

1. Arrangement fees payable to the lender
2. Legal fees
3. Valuation fees
4. Maintenance costs - you are still responsible for maintenance of the property
5. Insurance costs - maintaining adequate buildings insurance

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Home Income Plan

How does it work?

With a home income plan, equity is released through a lifetime mortgage or a home reversion plan. It is automatically invested into an annuity that is built into the plan, to generate an income for life. A cash lump sum may be available in addition to an income, but the amount may be restricted.

An annuity is a plan that guarantees a series of payments in exchange for a cash lump sum. The income you receive will depend on prevailing annuity rates, your age at the outset and your gender.

The advantages and disadvantages of home income plans largely depend on whether the money is released through a lifetime mortgage or a reversion plan; however, annuities have their own set of pros and cons:

ADVANTAGES

1. A lifetime annuity guarantees that the income will be paid for as long as you live.
2. Income can usually be taken on a level or increasing amount each year.
3. With a home income plan annuity, you can usually get a higher income than would be payable from a standalone annuity.
4. You may be able to take some lump sum in addition to the annuity.
5. The older you are, the higher the income.
6. As interest is repaid automatically, the reduction in the home's value is minimised.

DISADVANTAGES

1. You are committed to an annuity as a means of extra income, leaving you no choice of alternatives.
2. You can lose out by taking a lifetime income if you were to die soon after the plan is completed, unless the plan includes protection against this.
3. You do not have the option of allowing the interest to build up, so the reduced annuity may not improve your financial circumstances greatly.
4. Home income plans involve borrowing against your home and may work out more expensive in the long term than downsizing to a smaller property.
5. Home income plans may affect your entitlement to state benefits and grants.

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Home Reversion Plan

How does it work?

With this plan, you sell part of, or your entire, home to a reversion plan company in exchange for a tax-free cash lump sum and a guaranteed lifetime lease with no monthly repayments to meet.

You can stay in your home either rent-free or by paying a nominal rent for as long as you choose, and you can guarantee an inheritance to your beneficiaries. Both you and the reversion scheme company share in any increase in your property's value, providing you have not exchanged 100% of its value.

ADVANTAGES

1. No monthly repayments to make.
2. You know what proportion of your home will be used at the outset.
3. You can leave a fixed proportion of equity to your estate.
4. Flexible home reversions now allow you to release the right amount for your needs today, while having a guarantee of further cash releases if or when required in the future.
5. You benefit from any increase in value of the percentage of the property that you still own.
6. May be available to those aged 55+ and you can typically raise more money from your home at a younger age with a reversion plan than a lifetime mortgage would allow.
7. You'll be able to release more money the older you are.
8. You can usually still move home (subject to certain restrictions).

DISADVANTAGES

1. You do not typically receive the full market value of the share of the property you sell. This is due to the fact that, while the reversion plan company gives you the absolute right to live in it rent-free for the rest of your life, it does not make its return on investment for a number of years.
2. You only benefit from any rises in house prices on the proportion you still own.
3. The reversion plan company will benefit from any increase in value of the property.
4. Reversion plans cannot usually be reversed as you are selling part of your home.
5. Reversion plan providers do not usually guarantee further advances.
6. If you choose to end the plan early, charges may apply.
7. Your tax position and eligibility for means-tested benefits may be affected.

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Release tax-free equity from your home to support your future lifestyle needs.

Lifetime Mortgage

How does it work?

A lifetime mortgage is a form of equity release scheme whereby a loan is secured against your property, providing you with a tax-free cash lump sum or a regular income to spend as you wish.

Interest is added to the lifetime mortgage loan throughout your lifetime, accruing at a fixed or variable rate. The loan plus interest is eventually paid back when the home is sold, which could be when you move into long-term care, or when you and your partner die. Subject to your age, you can typically release between 18% and 50% of the value of your home with a lifetime mortgage.

ADVANTAGES

• Choose a cash lump sum or regular income, typically with no monthly repayments to meet
• You still own your home, so all growth in the value (if any, of course) belongs to you
• 'No negative equity' guarantee
• Some plans enable you to guarantee an inheritance for your family
• Plans can be taken out as young as 55

DISADVANTAGES

• Inheritance amount will be reduced
• Interest rates may be higher than for normal mortgages due to the long-term nature of the loan.
• The amount owed on the loan can mount up quickly as interest is compounded.
• Early repayment charges may apply
• Tax position and certain state benefits will be affected
• You could raise a larger amount with a reversion plan, especially at a younger age

Please note: You can get interest-only lifetime mortgages wherein you pay interest monthly, but lifetime mortgages are mainly offered as 'rolled up' interest. 'Rolled up' interest is paid off all together in one final payment, along with the total amount of your loan when your property is sold, as described above.

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Enjoy a more comfortable retirement by unlocking money from your home.

Types of Equity Release

Types of Equity Release Schemes

There is a range of equity release schemes available on the market offered by reputable equity release providers, and they fall into two main categories:

1. Lifetime Mortgages
2. Home Reversion Plans

Each type of equity release scheme facilitates a different method of releasing the equity in your home, and there are various other useful features available to create the ideal equity release scheme for you, including:

Protected Equity

Many equity release schemes come with a no-negative-equity guarantee, and in some cases there are plans which also enable you to protect a fixed share of the value of your home. For example, if you protected a 30% share in your home, you have a guarantee that a minimum of 30% of your property value is protected for you in later life or as inheritance for your beneficiaries.

Impaired Life

Some providers will allow you to release more capital from the equity release scheme if you suffer from one of a list of health conditions.

Income

Many equity release schemes allow you to release the equity in the form of an income, by releasing the capital in staged payments over your lifetime.

Flexible Drawdown

There are some equity release schemes available with a pre-agreed 'cash reserve'. Like an overdraft, this is a facility that allows you to draw-down cash whenever you wish, so it's ideal for generating funds when required for home improvements, maybe a new car, a special holiday or something else. Interest is only added to the amount drawn, so this type of equity release scheme can work out much cheaper than others, depending on your needs.

Flexible Drawdown is a complicated area, with both advantages and disadvantages. Please review the dedicated section on this subject within the Equity Release area.

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Impartial, plain English introduction to equity release.

Introduction to Equity Release

Equity release: unlock money from your home for a more comfortable retirement

Equity release is typically available to people who are over the age of 55 and have their own home with a significant amount of equity, but don’t have enough money or income for their needs. By releasing equity in the form of a lifetime mortgage or home reversion plan, it enables the individual(s) to remain in their home and raise money for things such as:

• Generate a capital lump sum
• Provide an additional income
• Give lifetime gifts to relatives
• Make home improvements
• Buy a holiday home
• Pay for long-term care

Where equity release is a suitable solution and you take out a lifetime mortgage or home reversion plan, the money does not usually need to be paid back or the home sold until the last remaining borrower dies or moves into care. However, this may not be the case; for example, if you make repayments, you will preserve as much of the inheritable estate as possible. 

Is equity release right for me?

While there are benefits for people in this situation, equity release isn’t for everyone and the benefits need to be weighed up alongside drawbacks, such as equity release can:

• Be expensive 
• Affect your ability to claim certain state benefits and your personal tax position.
• Have an impact on local authority grants / other grants (i.e. for essential home improvements)
• Potentially erode any inheritance passed down to loved ones

Also, there may be alternative options available to you that need to be explored before taking the equity release route, such as consideration of a conventional mortgage as an alternative, moving to a smaller home, using any savings or investments, or potentially selling the home and moving into rented accommodation or living with children or other relatives. 

Don’t worry, as we can help you understand all the features and drawbacks so you can make a fully informed decision.

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Expert financial advice about what is right for you

As financial advisers with the required equity release qualification and training, we can assess your individual circumstances and needs, and then give you expert advice on the right course of action for you. The benefits need to outweigh the drawbacks to ensure equity release is more suitable than alternative methods of raising funds.

It’s often said that you can’t buy peace of mind; however that’s exactly what our financial service does, as you can rest assured knowing you have found the right solution for you.

It is advised that customers seek independent legal advice before entering into a legally binding equity release contract.

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