Equity Release Interest Rates, Fees & Costs Explained
I think you’ll agree with me when I say…
There’s a lot to learn when it comes to equity release.
Like any other financial product, equity release plans have interest rates, fees and costs. However, with economic inflations, the ever-rising standards of living, and unscrupulous lenders cropping up every day, you can get yourself in a pickle, especially if you have no clue about equity release rates or fees.
Lucky for you, here is a comprehensive guide that will help you understand all the rates, fees and costs involved with taking out an equity release plan.
Understanding Equity Release Rates & Fees
If you are property rich but struggling for cash, why not use something you already have and take some equity on your home?
Equity release enables you to unlock tax-free cash from the value of your property. Moreover, for many, the fact that you do not have to repay the money you release during your lifetime is part of the appeal.
Nevertheless, with the numerous benefits of equity release, you still have to pay some charges attached to your equity release plan.
Typically, the cost of equity release is dependent on two factors:
- The initial fees for arranging and put the plan in action
- The interest rate charged on the loan
It would be best if you kept in mind that you repay the loan and the equity release interest when you pass away or move into long-term care.
Now let’s look into these factors in turn:
The Initial Fees
As per the Equity Release Council, the average cost of planning equity release is between £2,000 to £3,500 and entails of the following expenses:
- Financial advice fees
- Lender’s fees
- Property valuation fees
- Solicitor’s fees
1. The Financial Advice Fees
To take out an equity release plan, you must get reliable financial advice. However, the costs for this can differ dramatically.
The advice process comprises a deep dive into the equity release market, providing you with proper advice and finally processing your application.
With a reliable equity release company, this can cost you from £900 to about £2000.
2. The Plan Provider’s Fees
Like other mortgages, equity release plan providers may charge you an application fee to settle their set-up and legal expenses while they help you plan for a lifetime mortgage.
These costs can vary from about £100 to £995, and you can opt to either pay it from your equity release capital or add it to your loan. However, if you decide to add it up to your credit, you should keep in mind that it will accrue compound interest.
The good news is that with so much competition, most equity release providers currently have exceptional offers, where there are no or reduced application fees.
For more information on this and more, you can click here to see how much equity you can release and chat with an expert for free.
3. The Survey/Property Valuation Fees
Property valuation fees will be on the charging rooster. Your plan provider needs an independent survey and property valuation for two reasons:
First, it’s to have a current market value for your estate (based on the current sale price of a home), so that he/she can calculate how much you can borrow.
Secondly, to ensure that your estate is in pristine condition. If it isn’t, then the plan provider is obliged to decline, or insist that you have essential repairs carried out, either pre or post-plan completion.
Surveyor valuation costs are dependent on the estimated value of the property. However, you can find lenders who can offer you a free valuation. It all depends on your initial agreement with your plan provider.
4. The Solicitor’s Fees
According to the Equity Release Council (ERC), your solicitor must be independent to your plan provider’s solicitor, and you must have at least one face-to-face meeting with him/her.
The solicitor’s fee is dependent on your choice, and their costs can vary from £600+VAT (plus disbursements) to about £1000.
Some solicitors can even come for a home visit for your meeting, or ask you to show up at any of their local offices, whichever suits you best for the most convenient service.
What about the Interest Rates?
Since 2015 until today, the interest rates on equity release have been generally higher than standard mortgage rates. They are between 3.5% and 7% – and that could be the fixed rate for the life of your loan.
The amount of interest you pay at the end of your equity release plan, however, depends on how long the scheme runs and the type you choose. Keep in mind that this will come to an end when you decide to sell your property, you die, or move into permanent care.
With a limited lifetime mortgage for example, since you do not make any monthly repayments as the scheme goes on, interest charges can mount up quickly. Each year the interest due is added to the overall loan, and from then on, it accrues more interest.
For example, if you have a fixed interest rate of 6%, an equity release loan will double in size after roughly 12 years. At 5% it can take about 14 years to double.
It’s therefore vital to remember to sign up for a plan with a “no negative equity” guarantee since it will ensure that what you or your family owe the lender can never exceed the value of your property.
Moreover, by taking out equity from your lifetime mortgage in instalments, via a drawdown plan rather than as an initial lump sum, you can lower the amount of interest you will pay in the long run.
Various plan providers offer multiple rates, so it’s up to you to ensure that you get the best deal.
For example, Aviva offers fixed rates of up to 3.75% interest rates, More2Life offers up to 3.40% fixed interest rates, LV offers up to 6.04% interest rates and Legal $ General offer a fixed rate of 3.40%.
You need to check the entire package not just the interest rates before deciding on which is best for you.
With all said, it’s essential that before you embark on the journey to taking out equity on your home, you get independent advice. A financial adviser will talk you through the details – including how much equity release will cost you – so you can decide whether it’s the right option for you.
If you, however, have any burning questions or you need any clarifications, be sure to click here to see how much equity you can release and chat with an expert for free.
How much money could you release?
An equity release plan allows you to access the value of your home, tax-free without having to sell up, so that you can have money to spend on whatever you want or need.