I think you’ll agree with me when I say…
There’s a lot to learn when it comes to equity release which is authorised and regulated by the Financial Conduct Authority.
Like any other financial product, equity release plans have interest percentage, 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 charges.
Lucky for you, here is a comprehensive guide that will help you understand all the percentage, fees and costs involved with taking out an equity release plans.
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Understanding Equity Release Costs
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, which is authorised and regulated by the Financial Conduct Authority, enables you to unlock nontaxable 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 plans.
Typically, the cost of equity release is dependent on two factors:
- The initial pay for arranging and put the plan in action
- The interest price charged on the loan
It would be best if not to forget 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 advices dues
- Lender’s costs
- Property appraisal fee
- Professional’s wage
1. The Financial Advice Fees
To take out an equity release plans, 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 firm, this can cost you from £900 to about £2000.
2. The Plan Contributor’s Fees
Like other mortgages, equity release plan providers may charge you an application fee to settle their set-up and lawful 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 combine it to your loan. However, if you conclude to combine it up to your credit, you should always acknowledge 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 expenses.
For more information on this and more, you can tap here to see how much equity you can release and contact with an master at no cost.
3. The Inspection/Property Valuation Fees
Property appraisal fee will be on the charging rooster. Your plan provider needs an independent evaluation 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 valuation. It all depends on your initial agreement with your plan provider.
4. The Professional’s Fees
According to the Equity Release Council (ERC), your solicitor must be independent to your plan sponsor’s solicitor, and you must have at least one face-to-face meeting with him/her.
The professional’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 Charges?
Since 2015 until today, the interest rate on equity release have been generally higher than standard mortgage expense. They are between 3.5% and 7% – and that could be the agreed value for the life of your loan.
The amounts of interest you pay at the end of your equity release plan, however, depends on how lengthy the scheme runs and the type you choose. Do not forget that this will come to an end when you are ready 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, lending rate 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 set interest value of 6%, an equity release loan will grow twice the size after roughly 12 years. At 5% it can take about 14 years to duplicate.
It’s therefore vital to be mindful 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 future.
Various plan providers offer multiple dues, so it’s up to you to ensure that you get the best deal.
You need to examine the entire package not just the valuation 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 specifics – including how much equity release will cost you – so you can figure whether it’s the right option for you.
If you, however, have any burning questions or you need any clarifications, be sure to tap here to see how much equity you can release and contact with an master without charge.
How much money could you release?
An equity release 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.