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Equity Release Costs

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There’s a number of things to learn when it comes to how equity release work which is authorised and regulated by the Financial Conduct Authority.

Lucky for you, here is a comprehensive guide that will help you understand how all the percentages, fees or insurance and costs work in taking out an equity release plans.

Understanding Equity Release Costs

If you are property rich but struggling for cash, or just want a more comfortable retirement life with your family, why not use something you already have and take out some of the equity tied up in your house?

Equity release, which is authorised and regulated by the Financial Conduct Authority, provides you the ability 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 number of benefits of equity release, you still have to pay some charges tied to your equity release plans.

Typically, the cost of equity release is dependent on two factors:

  • The initial payment for arranging and putting the plan in action
  • The interest costs charged on the loan

Now let’s look into these factors in turn:

The Application 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
  • Lender’s costs
  • Property appraisal fee or insurance for arranging a lifetime mortgage
  • Professional’s costs

1. The Financial Advice Fees

To take out an equity release or home reversion plans, you must get reliable financial advice. However, the costs for this can vary.

The advice process comprises a deep dive into the equity release market, which ensures 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 how other mortgages schemes work, an equity release provider may charge you an application fee or insurance for their set-up expenses when applying 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 into your loan. However, if you decide to add it into your credit, it is important to remember that it will affect and accrue compound interest.

For more information on this and more, you can tap here to see how much equity you can release and contact with an adviser at no cost.

3. The Inspection/Property Valuation Fees

A property appraisal fee or valuation will also be charged for. 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 house), so that he/she can know how much you can borrow.

Secondly, to ensure that your estate is in good 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.

4. The Professional’s Fees

According to the Equity Release Council (ERC), your solicitor must be independent to your provider, and you must have at least one face-to-face meeting with him/her.

The professional’s fee or insurance is dependent on your choice, and their costs can vary from £600+VAT (plus disbursements) to about £1000.

How Does Interest Charges Work?

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 long the scheme runs and the type you choose. It is important to remember that this will come to an end when you are ready to sell your property, or move into permanent care.

With a limited lifetime mortgage for example, because you do not make any monthly repayments as the scheme goes on, affecting the lending rate results in it mounting 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 installments, via a draw-down 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 options, so it’s up to you to ensure that you get the best deal.

For example, Aviva offers alloted price of up to 3.75% interest ratio, More2Life offers up to 3.40% predetermined toll, LV offers up to 6.04% ratio and Legal & General offer a set ratio of 3.40%.

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 house, 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.

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.

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