Minimize Equity Release Setup Costs in 2022
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If you’re considering using equity release to help fund your retirement you’ll want to know how you can minimise equity release setup costs.
In that case, it’s important to take the time to understand all of the costs and fees involved to help decide if it’s the best option for your financial situation.
Luckily, we have all the secrets!
Continue reading as we outline some of the ways you can reduce setup costs for equity release.
What You’ll Learn in This Article:
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Choosing the Right Equity Release Provider
There are many different equity release providers in the UK, so it pays to research which company is best suited for your needs.
The first step should be doing a comparison shop to see what is available and who has the best rates.
Pro Tip: Get yourself a whole market financial adviser right away who can guide you through this process.
It’s important to consider all of the fees that come with equity release, making sure you are getting a firm answer before signing on.
In addition to making sure you’re choosing the right provider, it’s also important for you to understand how equity release works.
Any legitimate equity release lender will be able to give you these exact fees upfront. They may even be available on their website.
In addition, the type of equity release plan that you select will impact which provider you work with.
Some lenders offer lifetime mortgages and home reversion schemes, while others only have 1 of the 2 available.
Shop Around for a Good Investment Plan & Provider
After you’ve chosen an equity release provider, it’s important to find out if using one of their investment plans would reduce setup costs.
Depending on the company you choose, they might have various options that provide additional retirement income.
When choosing between providers, also look at whether they offer any discounts for upfront payment fees depending on when you set up with them.
6 Standard Costs
Below are the most common costs associated with setting up an equity release plan:
- Property valuation1 fee
- Lenders application fee
- Solicitors fees
- Arrangement fees
- Adviser fees
- Estate agent fees
These fees are necessary to get the loan set up in your name but vary depending on which provider you chose and what type of plan you take out.
How to Reduce Property Valuation Fees?
Equity release providers charge a property valuation fee to assess how much the property is worth.
However, some do offer this service for free.
Property valuation fees are usually based on the age, condition, and location of your home.
In addition, they look at the price of similar properties that have recently been sold in your area.
You can reduce this charge if you plan and take out an equity release early enough before moving into a new residence.
The provider will be able to reassess the value without paying another fee so that they have more information about what your home would currently be valued at.
How to Reduce Lenders Application Fees?
The lender’s application fee is the charge that you will pay to your lender, in addition to any other fees for their time, expertise, and advice.
You can ask your equity release provider what they could do to help reduce this cost.
Many providers may offer different types of financial assistance with these costs, which would then mean fewer out-of-pocket expenses for you.
How to Reduce Solicitors Fees?
The solicitor’s fee is a charge levied by an independent professional who will handle the legal side of your application,
Including carrying out any searches and liaising with solicitors to ensure that you have all necessary documentation in place.
Typically these fees are calculated on a percentage basis of the equity release amount,
Which means that if there were no equity release, then this cost would not apply as they don’t work on commission.
Many equity release providers offer free consultations meaning that you can ask them about what their process looks like and how much it costs without committing yourself.
This will give you an idea of what you’re signing up for.
How to Reduce Arrangement Fees?
Like solicitor fees, many equity release providers offer a free consultation without committing you to take out a plan with them.
You may also want to consider not using an advisor but instead dealing with your lender directly, as this can save on costs.
Some people choose to use a solicitor or other professionals who understand all the legal documentation for homeownership and property rights2.
This ensures that you have everything covered, which can help reduce setup fees.
How to Reduce Adviser Fees?
The adviser fee can vary between providers, but it’s worth checking with them what the options are if you have a particular need for assistance.
Some people choose to ask an independent financial advisor such as those from the IFA Association3.
You can also use an accountant who specialises in providing advice on investments and other areas of finance that could help address your specific needs.
It’s also possible that by using equity release instead of selling up and downsizing,
There might be fewer upfront costs, so don’t forget to factor this into your calculations when deciding how much these fees will cost.
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How to Reduce Estate Agent Fees?
Estate agent fees are just one of the costs you might incur when buying or selling your property.
The cost depends on how much work is involved, and this can vary considerably,
So it’s worth asking estate agents if they will charge by time spent or per job.
Some may offer to do all aspects for an agreed fixed price which could be more advantageous for you in terms of reducing upfront costs.
Some people choose not to use an estate agent at all and instead sell privately with their own buyer’s negotiator, but bear in mind that there are restrictions about who can do this.
How to Reduce Legal Fees?
The cost of a solicitor’s advice will depend on the complexity of your situation.
Not all solicitors charge according to time, so it’s worth looking for a fixed price quote or an hourly rate you’re comfortable with.
Some solicitors also offer free initial consultations – be sure to ask about this when enquiring.
Many people find that once they’ve spoken with their lawyer in more detail and clarified what help they need, they decide not to proceed.
How to Reduce Mortgage Broker Fees?
An equity release mortgage broker will usually charge a fee of around £500 to arrange the deal.
This can be paid by you, your estate agent4, or their negotiator – whichever suits you best.
Suppose the sum is too high for you.
In that case, some companies offer an interest-free option as long as they are confident that there will be no problems with getting approval.
It’s one of the cheaper deals on the market.
3 Common Maintenance Fees
Several different charges might be associated with maintaining your equity release plan, depending on your provider.
Some examples include:
- Upfront fees (to set up the loan)
- Annual administration charges (to keep an account open)
- Monthly interest rates
These may sound like harmless expenses, but when you are only looking at monthly income versus payments over time, these can have a huge effect on your finances.
It’s important to be aware of all costs before making any decisions and start with the one that best suits your needs and budget.
How to Reduce Upfront Fees?
You can reduce the upfront fees by asking for the funds to be deducted from the equity you release.
You can find out from your financial adviser if this offering is available to you.
How to Reduce Annual Administration Charges?
Many providers offer five years with no administration fees to incentivise5 their customers not to cancel their contracts early.
This is one way you can save money; be sure your needs will last at least five years before opting into such a long commitment.
How to Reduce Monthly Payments?
With equity release, there is zero obligation to make monthly repayments on your loan.
The loan is paid off when you pass away or move into long-term care.
Is There Any Way to Avoid Paying a Mortgage Broker's Fee?
No. It is not possible to arrange an equity release deal without the help of a mortgage broker, and they will always charge for their services.
What's the Best Way to Minimize Setup Costs?
Pay the fee in a lump sum. This will save you from paying interest on it over time and may encourage your mortgage broker to offer an interest-free option if they are confident that there won’t be any problems getting approval for the deal.
What's the Average Total Cost of Setting up Equity Release?
The average total cost of setting up an equity release ranges from £700-£1900, depending on the type and length of the chosen deal.
What Are Some Other Ways to Pay for Setup Costs?
If you have savings in a bank account, you can withdraw money from it so that there won’t be any interest charges on them over time. You could also use your inheritance or pension funds as collateral if they’re worth more than what’s required by law (if applicable).
Your family may also help out with funding these expenses – just make sure to agree on this before signing anything.
What Are Some of the Upfront Costs?
Some of the upfront costs include a valuation fee, notary fees for drawing up paperwork to declare that you’re fully qualified (if applicable), and legal advice.
Some providers may also charge an application fee or even monthly management charges – this should be discussed with your provider beforehand.
Equity release is a great option if you need money to supplement your retirement income or want to use the money for a big-ticket item that you have always dreamed of.
While equity release fees are unavoidable, you can find the best deal to suit your pocket.
It’s important to note that these fees can be paid from the money you release.
Contact your financial adviser today to find out more and explore how you can minimise equity release setup costs!
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