Reviewing your equity release mortgage, an action that could potentially save you significant amounts, is often overlooked. 

Between 1991 and the end of 2022, UK homeowners tapped into £46bln worth of property wealth through equity release plans.¹ 

Many homeowners, especially those with older plans, may not be fully leveraging the best deals available. 

As your trusted guide in this intricate financial landscape, we at SovereignBoss are committed to helping you navigate the nuances of your equity release plan. 

Our comprehensive guide aims to provide you with the insights necessary to ensure optimal financial security. 

Therefore...

What Are the Advantages of Reviewing Your Equity Release Plan?

Reviewing your equity release mortgage can provide significant benefits. 

It offers you an opportunity to reassess your financial situation, evaluate your current plan's performance, and identify better options if available. 

Given the frequent fluctuations in interest rates and changes in legislation, regular reviews can potentially help you decide if switching equity release plans will save you money or offer you more repayment flexibility.

Steps for Reviewing Your Equity Release Plan

Reviewing your equity release plan may sound complex, but it essentially involves two main steps: understanding your current financial standing and evaluating the performance of your plan.

Understand Your Current Financial Situation

This step involves getting a clear picture of your financial status. 

You need to know: 

• How much you still owe on your equity release mortgage, which is called your outstanding loan balance. 
• Calculate how much interest has accumulated over time, this is your accrued interest, and note how much you have already repaid - these are your total repayments. 
• Understand the current market value of your property, this is your property valuation. 

Evaluate Your Equity Release Mortgage's Performance

Once you understand your current financial status, it is time to assess how your equity release plan is performing. 

Questions to ask yourself: 

• Is your plan offering the benefits you expected when you signed up? 
• Are there other plans in the market now that offer lower interest rates or better terms? 

This evaluation is important to understand if your current plan still meets your financial needs or if your are better off switching to a new plan. 

By following these two steps, you will have a clear understanding of where you stand with your equity release plan and whether it is time for a change. 

It is highly beneficial to consult with a financial advisor or equity release broker to analyse your current plan and investigate all the options available to you.

Things to Consider When Reviewing Your Equity Release Plan

When you are reviewing your equity release plan, there are a few key factors you need to consider. 

Firstly, you need to think about whether the amount of money you have borrowed, or plan to borrow, has changed or needs to change. 

Maybe you have paid off a significant chunk of your mortgage, or perhaps you need to borrow more for home improvements or to support your lifestyle.

Next:

Take a look at the interest rate on your equity release mortgage. 

Have the rates dropped since you took out your plan? 

If they have, you may be able to obtain a better deal by switching to a plan with a lower interest rate. 

But keep in mind, there may be costs associated with setting up a new plan. 

Then:

Consider your repayment options. 

Are you happy with how your are currently repaying your loan, or would a different method work better for you? 

This could be influenced by changes in your income or your future financial plans.

Lastly:

Keep in mind the potential for early repayment charges. 

These are fees that your lender may charge if you decide to pay off your loan earlier than agreed. 

If your are thinking of paying off your mortgage soon, you will want to check the terms of your plan to determine whether these charges apply to you.

By taking into account these factors alongside expert guidance, you can gain a comprehensive overview of your existing equity release plan.

This will help you determine whether it still fits your needs, or if it is time to find a plan that is a better match for your current and future financial situation.

Understanding Changes That Could Impact Your Plan

Navigating changes in your equity release plan may seem challenging, but a clearer understanding of some key components can help you make informed decisions. 

Loan Amount and Interest Rate Changes

Your loan amount and the interest rate on that loan are two fundamental aspects of your equity release plan. 

If your loan amount increases or decreases, it alters how much you owe. 

Interest rate changes also play a significant role as they can affect the total amount you will be repaying over time. 

If interest rates decrease, you may have the chance to save money by switching to a plan with a lower rate.

Repayment Options and Flexibility

Repayment options represent the way you choose to pay back your loan. 

Having the flexibility to adjust these options according to your financial situation can be quite beneficial. 

You may, for instance, want to alter your repayment schedule or pay off a larger portion of your loan at once. 

Reviewing this aspect of your plan ensures it aligns with your current and future financial needs.

Good news:

As of March 2022, all new lifetime mortgages offered by Equity Release Council members now offer the guaranteed right to make penalty-free voluntary repayments.² 

Early Repayment Charges

These are potential fees you may face if you decide to repay your loan earlier than the agreed term. 

Not every plan includes these charges, but if yours does, it is crucial to factor this into your decisions, especially if you are considering making larger repayments.

Review Your Current Financial Situation

Your financial status may change due to various circumstances, such as shifts in income or unforeseen expenses. 

Regularly reviewing your finances helps ensure that your equity release plan remains appropriate. 

Significant changes in your financial circumstances may necessitate adjustments to your plan.

Evaluate the Performance of Your Equity Release Mortgage

To measure the success of your equity release mortgage you should consider three key factors:

Current Property Valuation

The current property valuation is the estimated worth of your property in today's market. 

It is important to obtain an up-to-date valuation as house prices can fluctuate over time, which can affect the equity available in your home. 

This is vital because the more your home is worth, the more equity you can potentially release. 

If your home's value has gone up significantly, you may have the option to borrow more. 

Outstanding Loan Balance

The outstanding loan balance is the amount you still owe on your equity release mortgage. 

If you have chosen a lifetime mortgage, you would typically not make any repayments during your lifetime, unless you chose a product that allows for this. 

The interest is 'accrued' (compounded) over time, so the loan can increase quickly. 

Therefore, it is important to check your outstanding balance regularly to ensure your are comfortable with the amount you owe. 

Remember:

The higher the loan balance, the less equity you will have remaining in your home. 

This is an important consideration, especially if you are planning on leaving an inheritance for your heirs. 

If this is a concern, speak to an equity release advisor or broker who can help you investigate plans that offer inheritance protection³ features that may not be available on your current plan. 

Interest Accrued and Total Repayments

If you have a lifetime mortgage, the interest accrued can significantly increase the overall amount you owe over time. 

It is compounded, meaning that you are charged interest on the initial loan plus the interest that has already been added. This is why the loan can grow quickly.

If you are making repayments, they would generally go towards repaying the interest to stop the debt from growing. 

However, if your are not making repayments, the interest will continue to accrue until the home is sold.

Importantly:

Home reversion plans, will not have an outstanding loan balance or interest accruing, as this form of equity release involves selling all or part of your home to the provider. 

Today's Equity Release Market

In the wake of a surge in interest rates, the present market has experienced a modest downturn. 

During the second quarter of 2023, the Equity Release Council observed a 29% year-on-year decline in the number of active equity release customers.⁴

How Low Have Equity Release Interest Rates Fallen?

Given that the Bank Rate has risen from 0.1% in December of 2021 to 5.25% as of August this year, equity release interest rates are in fact on the rise.⁵

The lowest rate in January 2020 was 2.84%, with the Equity Release Council now reporting an average interest rate of 6.21% in their Spring 2023 report.* ⁶

*This rate was accurate upon publication. While we review our rates regularly, they may have changed since this article was last updated.

What Better Equity Release Options Are Now Available?

Several improved equity release options are currently available, offering more flexible terms, better interest rates, and enhanced features for borrowers. 

Equity Release Council-approved lifetime mortgage products now allow customers to pay off a portion, or even all, of the accrued interest that compounds each month. 

The advantage of this is that there is more equity left in the property, as the loan amount is not increasing each month.

Those same plans also have a No Negative Equity guarantee. This means that should the property be sold and there is not enough from the proceeds to pay off the loan, the estate is not required to make up the deficit. 

You can also move if you wish, as it is a rule of the Equity Release Council that a lifetime mortgage can be transferred (or ‘ported’) to another property. 

Consider: 

The new property must meet the lender’s requirements. 

Part of the loan may need to be repaid if you are downsizing but this will not incur any early payment charges.

The Equity Release Council has also made it a requirement that providers allow borrowers the ability to make annual penalty-free partial repayments of up to 10%  on all lifetime mortgage plans in line with the lender’s terms.⁷ 

What Action Should You Take Now?

If you already have an equity release plan, or you are considering getting one, you may be wondering what your next move should be. 

Given the changes in the equity release market, it could be a good time to review your current plan or consider taking one out if you have not done so yet.

Remember, it is always a good idea to talk to a financial adviser who specialises in equity release. 

They can give you advice based on your personal circumstances and help you understand the potential benefits and drawbacks.

Can I Get a Free Equity Release Plan Review?

Yes, some equity release providers offer free plan reviews to ensure your plan still meets your financial needs and is in line with your goals.⁸ 

Many financial advisers offer a free initial consultation where you can discuss your current plan or your needs if your are thinking about equity release. 

They can help you understand your options and give you a general sense of what may be suitable for you. 

However, detailed advice may come with a fee, so it is a good idea to ask about this upfront.

How Often Should I Review My Equity Release Plan?

Just like any other financial product, it is important to review your equity release plan periodically. 

The exact frequency depends on your personal situation, but a good rule of thumb is to review your plan at least once a year.

This is to ensure that your plan is still suitable for your needs and to take into account any changes in your personal circumstances, the value of your property, and the wider equity release market. 

Notable shifts in your personal circumstances, financial situation, or the broader economic market could also prompt a reevaluation of your current plan.

Common Questions

In Conclusion

Continually reviewing your equity release mortgage is essential to ensure it still fits your evolving needs and circumstances. 

Keeping abreast of changes in the property market, interest rates, and equity release products will allow you to make informed decisions. 

Whether your are considering a top-up, contemplating a switch, or seeking to understand the cost implications better, the key lies in staying informed and taking a proactive approach. 

Remember, due to the complex nature of equity release, it is advisable to seek guidance from a financial adviser or broker to fully understand the implications and options. 

After all, an equity release mortgage is not just a financial commitment for today, but a decision that impacts your future. 

Take the time to review your equity release mortgage to confirm it's suitability for your current financial requirements and explore potential opportunities for better terms or options.