Equity Release Costs in Dec 2021

4 Costs of Equity Release Schemes in 2021 You MUST Know

Contributors: Nicola Date, Katherine Read. Edited by Rachel Wait & Reviewed by Francis Hui

What are the 4 MAJOR Costs of Home Equity Release Schemes & What Are the Hidden Fees? Discover the Costs of Releasing Equity & Make an Informed Decision Today.

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What are the Costs of Equity Release?

Be careful with equity release or you could end up wasting money!

Here’s the thing, it can be a expensive process, but it doesn’t necessarily need to be. With the right advice, you can save buckets of hard-earned cash while joining the over 10,000 UK retirees who’ve unlocked the key to their retirement dreams in 2021.

Knowledge is power, so we’ll help you discover:

  • What are the equity release charges in Dec 2021.
  • The secret of how to pay for equity release.
  • Where these charges come from.
  • Weighing up cost to value when it comes to equity release.

They say that it takes 10,000 hours to master a skill. Well, we’ve certainly done the work. Our expert team has analysed over 220 plans by every regulated plan provider in preparation to give you the best advice on the market. And it’s FREE!

We’ve compared the expenses involved with a range of advisers, plan providers and solicitors, to weigh up the average and determine what fair equity release expenditure should be.

We’ve researched for you, so all you need to do is read. Find out NOW!

What Is Equity Release?

Equity release is an umbrella term for mortgages that are designed for older homeowners. If you’re aged 55 or older, and you own your home in the UK, you could qualify to unlock the cash tied into your home.

Before you continue reading, we’ve summed up the most important information about equity release in this quick video. Check it out!

Learn More: What Is Equity Release and How Does It Work?

What Are the Main Types of Equity Release?

There are 2 main types of equity release, a lifetime mortgage, and a home reversion scheme. In both cases, payments are only expected when the last homeowner passes away or moves into permanent care.

  • Lifetime mortgage – you’ll retain 100% ownership of your estate. You’ll unlock cash in a lump sum, regular payments, or a combination of both. The loan, plus interest, is then repaid from the sale of your home.
  • Home reversion scheme – you’ll sell all or a percentage of your estate in exchange for equity. The lender will then collect their portion when the home is sold after you’ve died or moved to a care facility.

Learn More: Popular Equity Release Types

What Fees Will You Pay?

The fees you will pay for equity release will generally include the cost of a surveyor’s valuation, solicitor fees, advice fees, and lender application fees. Some lenders may offer some of these services free of charge.

What Are the Equity Release Set-up Costs?

The initial equity release setup costs will include paying for advice and your application fees. Some advisers charge 1.5% – 2% of the equity released, while others may have a flat fee of £900 to £2000. Application or arrangement fees, cover the equity release provider’s legal expenditures and administration charges.

Note that the costs involved with equity release can be covered from the funds unlocked from your home.

Check out: Equity Release: The Best Ways to Minimise Setup Costs

The Inspection/Property Valuation Fees

What Additional Costs Are There With Equity Release?

The additional costs of equity release are the surveyor’s bill, the individual responsible for determining the value of your estate, and solicitor’s fees, your legal representative in the equity release process.

Here’s further information:

  • Surveyor’s Valuation Bill – Your plan provider needs an independent evaluation and property valuation to give your provider a current market value for your estate so that they can assess how much you can borrow. (PRO TIP: Don’t get caught in a position where you can take higher equity loan interest rates for a free valuation. You might be sorry later.)
  • Solicitor’s Fees – 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: Get Advice on Releasing Equity

The Professional’s Fees

What Interest Rate Will I Pay on Equity Release?

The interest rates you will pay on equity release will differ according to the type of plan you select, your plan provider, your age, your health condition, and the amount of equity you release from your home. The lowest Equity Release interest rate is currently 2.97% (AER) fixed for life and the highest is 6.80% (AER). The average rate is currently 3.95%.

Learn all there is to know about: Equity Release Interest Rates in Dec 2021

Does the Loan-to-Value Affect Equity Release Interest Rates?

Yes, the interest rates you receive with equity release are linked to the loan-to-value ratio. To get the best interest rate, you must be borrowing less than the maximum amount available to you. Alternatively, if you take out maximum equity, your interest rate could be quite high in comparison.

What Happens to the Interest Charged on Lifetime Mortgages?

When do you repay equity release interest? You can choose to either let the interest compound and have it paid off when you pass away or enter long-term care. Alternatively, you can opt for an interest-only lifetime mortgage which allows you to repay the interest monthly, reducing the total amount owed at the end of the loan.

What Percentage Loan-to-Value Can I Borrow Through a Lifetime Mortgage? 

The maximum amount you can unlock with a lifetime mortgage is usually up to 60% of the value of your property. The amount is determined by the age of the youngest borrower when your application is submitted. The older you are, the more you may borrow.

Do I Need to Pay Tax on Equity Release?

No, you don’t need to pay tax on equity release. Equity release is seen as a loan rather than a form of income. As a result, you receive tax-free cash. However, there might be tax implications based on how you spend the equity. For example, Inheritance Tax might be applicable if you gift family members with the money.

Discover the secret: Save a Fortune on Inheritance Tax With Equity Release

Is Equity Release a Competitive Means of Borrowing?

Yes, equity release is a competitive means of borrowing. Interest rates are at an all-time low, the industry is fully regulated, and your financial adviser should make the entire process pretty stress-free.

What Is the Total Cost of Equity Release?

While the total costs of equity release are somewhere between £1500 to £3000, plus the compound interest that will be owed. These costs might vary depending on your selected lender and representation.

Check this out! What is the Equity Release Process?

When Do I Pay Equity Release Fees?

You can pay all the costs involved with equity release when you receive the tax-free cash you unlock. Therefore, it’s essential to factor these fees in when you consider how much equity you’d like to release from your home.

Take note: Some lenders may require you to pay the surveyor’s fee upfront but you can ask your financial adviser for more details on the matter.

How Can I Reduce the Cost of Equity Release?

You can reduce the costs of equity release by finding a plan with downsizing protection, repaying the monthly interest so it doesn’t accumulate, repaying up to 10% of your plan annually, and opting for a drawdown reserve so you only pay interest on the cash you use.

Interesting read: Released Equity & Now Want to Downsize? Is This Possible?

What’s a No Negative Equity Guarantee?

A ‘no negative equity guarantee is a feature of all regulated plans and is designed to ensure that you will never owe more than the value of your property when it’s sold. The lender will write off any amount still owing on the loan, and neither you nor your beneficiaries will be responsible for any balances.

What Are Early Redemption Charges (ERCs) For Equity Release & Lifetime Mortgages?

Early repayments charges (ERC’s) for equity release and lifetime mortgages are fees charged by the lender if you pay off your mortgage earlier than when it is due to end. If you sell the property or repay the loan before you die or enter long-term care, you’ll be charged fixed-term or gilt-based rates.

Here’s further information:

  • Fixed-term – The amount that you would owe will reduce over time. This could be an additional 5% over the first 1 to 5 years, and 3% over the next 6 to 8 years. After a certain period, early repayment charges may not apply.
  • Gilt-based – These are based on the current gilt rate, which are British government bonds. These rates can be unpredictable and difficult to know in advance.

Since November 2019, all lenders have to give 3 years of protection from ERCs to joint borrowers.

Is It Worth Paying a Product Fee to Secure a Good Rate?

It’s worth paying a project fee to secure a good rate if you’re borrowing a large amount of equity. However, if you borrow a smaller amount, a higher interest rate might be favourable instead of a product fee. Your financial adviser will be able to assist you in determining the best course of action.

Got Questions? Check These First

How Much Does It Cost to Release Equity?

Is Equity Release Tax-Free?

Will the Providers Give Me a Breakdown of Costs?

In Conclusion

Overall, 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 set you back – so you can figure out whether it’s the right option for you.

In addition, now that you know the expenses involved, use our Dec 2021 equity release calculator to find out how much cash is tied up into your home. Perhaps your dream retirement is closer than you think?

Editorial Note: This content has been independently collected by the SovereignBoss advisor team and is offered on a non-advised basis. Sovereignboss may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations. Learn more about our editorial guidelines.

rachel w

Rachel Wait
Personal Finance Journalist

Rachel is an experienced finance journalist and editor with a particular interest in personal finance and consumer affairs. She has vast experience writing about money issues, property, insurance, and consumer affairs, and you’ll find her articles regularly featured in top media and newspaper publications.
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Written by
John Lawson
Founder SovereignBoss

John is passionate about education and has made it his life-long mission to assist UK citizens on their future financial options, with a specialist interest in equity release, and SovereignBoss is the natural extension of this passion.

Reviewed by
Francis Hui
Senior Risk Manager

Having held various high-level roles across the industry, Francis is truly an expert in aiding UK citizens in their financial decisions and risk analysis. His unique insight and statistical knowledge make him the perfect person to help you take your financial future to the next level.
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Katherine Read
Consumer Affairs Writer

Since joining the editorial team at SovereignBoss, Katherine has become focused on bringing transparency to finances and opportunities for those approaching retirement age. She writes on the topics of equity release, home reversion, and mortgages.

Nicola Date
Writer & Journalist

Nicola is a financial writer for SovereignBoss and is passionate about the opportunities that equity release can open up for homeowners. Her extensive business experience and deep understanding of the industry means that she’s always up-to-date with the latest developments.

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