Equity release has become one of the most brilliant financial products on the UK market in 2021. Are you considering joining millions of over 55’s in releasing equity from your home?
If so, it’s vital to note that there are costs involved. By understanding all the financial commitments of equity release, you won’t be caught with unexpected expenses.
We’ve put together this comprehensive article for you, highlighting every cent you will need to spend to release equity in 2021.
Important Information on Equity Release
Before you continue reading, we’ve summed up the most important information about equity release in this quick video. Check it out!
What are the Initial Charges of Equity Release?
When it comes to the release of equity from your home, there are some initial charges to be aware of. However, these may differ, depending on your plan provider.
Note that the costs involved with equity release can be covered from the funds unlocked from your home.
These fees typically include:
- Advice fees
- Application fees
1. Advice Fees
To take out an equity release or a home reversion plan, you must get reliable financial advice. However, the costs for this can drastically differ. Do not be deterred by higher charging advisers if they come with a top-notch experience. It might just be worth the investment.
Your adviser’s role is to do all the essential research and groundwork to help you find the right plan available on the market.
Some will charge 1.5% – 2% of the total equity released, while others may have a flat fee. With a reliable equity release specialist, this can cost you from £900 to about £2000.
A legitimate adviser will be able to indicate these charges upfront.
2. Application Fees
The application fees, also known as arrangement fees, cover the equity release providers legal fees and administration costs.
Like the advice fees, these will differ from one plan provider to the next. Your financial adviser will help you understand the application fees for your chosen plan.
What Other Fees Will You Pay?
In addition to the initial set-up fees, there will be additional costs during the equity release process. These being:
- Surveyor’s Valuation Fees
- Solicitor’s Fees
3. Surveyor’s Valuation Fees
Your plan provider needs an independent evaluation and property valuation for 2 reasons:
First, it’s to have a current market value for your estate (based on the current sale price of your house) so that they can know how much you can borrow.
Secondly, to ensure that your estate is in pristine condition for your family. 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.
Don’t get caught in a position where you take a higher interest rate for a free valuation. You might be sorry later.
Pro tip: Whenever working with a surveyor, make sure that they are RICS registered.
4. Solicitor’s Fee
In addition to financial advice, you will also require independent legal advice from a solicitor, as per a ruling by the Equity Release Council. Both the lender and the individual taking out a plan need a solicitor to avoid any legal disagreements.
Learn more about: Equity Release Advice
What Interest Rate do You Pay on Equity Release?
Interest rates will differ according to the type of plan you select, your plan provider, your age, the condition of your health, and the amount of equity that you release from your home.
The great news is that interest rates are at an all-time low, with some people achieving rates as low as 2.6% in 2021!
Learn all there is to know about: Equity Release Interest Rates in 2021
Does One Need to Pay Tax on Equity Release?
The short answer is no!
Equity release is seen as a loan, rather than a form of income. As a result of this, you receive tax-free cash.
There might be tax implications based on how you spend the cash. Inheritance Tax might be applicable if you gift family members with the money.
You can ask your financial adviser if your equity release use will incur tax.
What is the Total Cost of Releasing Equity in 2021?
While this total may vary per your selected lender and representation, you can expect to pay somewhere between £1500 to £3000 to release equity from your home.
In addition to this, there is, of course, the interest that can either be covered in monthly instalments, or settled when you pass away or move into permanent care.
With so much guidance provided, the process is generally pretty stress-free, and the costs can be pulled from the equity released from your home.
Check this out! What is the Equity Release Process?
Got Questions? Check These First
How Do Interest Charges Work?
Most equity release plans in 2021 come with a fixed interest rate. Simply put, it means that you will know exactly how much interest you will pay for the plan’s lifetime.
The interest then accumulates as compound interest.
Can I Pay Back Equity Release?
This depends on the plan. Make sure you discuss this with your advisor before you take out a plan.
You never have to pay rent to your equity release provider. The loan is usually only paid back when you pass away or move into care.
When Do You Pay the Equity Release Fees?
This may differ, but you will generally be able to pay the fees from the equity released from your home.
You can ask your financial adviser about this during your initial consultation.
Can You Pay the Interest?
For lifetime mortgages, you may be able to choose whether to pay back interest or let it build up. If you wish to do so, your financial adviser should be able to find you a plan that allows you to make interest repayments.
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.
In addition, now that you know, more or less, the costs involved, use our equity release calculator to find out how much cash is tied up into your home. Perhaps your dream retirement is closer than you think?