With interest rates lower than ever before, the last few years have seen a significant rise in the popularity of equity release schemes. You could save a considerable sum on interest by switching…

Equity release plans (where you release some of the equity in your home) have become increasingly popular in the past few years, mainly because interest rates are lower than ever before. More than 214,000 lifetime mortgages (the most popular form of equity release) were bought between 2015 and the end of 2020 according to the Financial Conduct Authority.

The competitive rates and flexibility of existing schemes make them more appealing to those in need of additional income or those who want to gift their children money for a house deposit sooner rather than later.

To give you an idea of how rates have changed, data released by the Financial Conduct Authority shows that the average interest rate last year was 3.4 per cent, down from 5.79 per cent in 2015. There are lower rates available, but they vary depending on your age and loan-to value-ratio. In general, the older you are the more likely you are to obtain a competitive interest rate.

You could pay less interest

If you have taken out an equity release plan five years ago or more, it’s worth getting it reviewed so that you can see if you can switch to a new deal and make a substantial saving. You could be paying a much lower rate of interest.

‘Rates are better now and there are better products that could suit your needs,’ says MB Associates’ equity release specialist Leslie Morris. ‘There may be early repayment charges to pay on your existing plan, which we’ll look at for you to see if it’s worth switching, but in some cases, it will be worth it to make a saving.’

To put things into perspective, here are some real-life examples of situations where some of our clients have made a saving on equity release by switching:

Case study 1:

A client took out an equity release previously where he borrowed £158,000 and was paying an interest rate of 6.99%.

By switching to a new plan with a lower interest rate, in the first five years, he will have saved just under £10,000 in interest.

In ten years, he will have saved £55,000.

In 15 years, he will have saved £126,000*.

Case study 2:

A client took out an equity release, also for around £158,000.

By switching to a new plan with a lower interest rate, she was going to save £66,000 in the first ten years.

In 15 years, she would have saved £127,000*.

*Switching may include fees.

How do you switch?

If you’re worried that switching sounds like a lot of hassle, we’re here to help. ‘We will do all the hard work for you so it’s relatively easy from a client’s point of view,’ says Leslie. ‘You will have to take independent legal advice which is a requirement for equity release. You will also need to provide the paperwork for your existing equity release mortgage. We can advise you on what’s best for you and then solicitors will do the rest. It’s a fairly straightforward process.’

MB Associates can advise you whether switching is the right move for you. ‘We do the calculations as to whether or not it’s viable for you to switch and if it isn’t then our advice will be to stay where you are,’ says Leslie.

There’s also another reason to review your equity release plan – life can change. ‘There may be something else that a new equity release mortgage could help you with,’ says Leslie. ‘Maybe when you took out equity release before you might have only taken out a lump sum and didn’t have the option to take out any further monies.

‘Your circumstances may have changed,’ adds Leslie. ‘One partner may have died, you may be looking to put a new roof on your house, or you might want to go on a luxury holiday. We can review your existing mortgage to see if you can get a better interest rate as rates are better now.’

Why consider equity release?

If you don’t have an equity release plan but are considering one, there are various reasons why it may benefit you. You can use the funds as you wish, to pay off an existing mortgage, avoid having to sell your home and downsize, gift a deposit to your children to help them get onto the property ladder, fund your retirement, or have the holiday of a lifetime. Some people also use it to split assets in a divorce.

You and your partner will both need to be over the age of 55. You will need to be a homeowner and your home will need to be worth a minimum of £70,000.

The most common type of equity release is called a lifetime mortgage, where a loan is secured against your home. You can take the money as a lump sum or a series of separate amounts.

With a lifetime mortgage, you still own your home and can remain in it until you die or move into long-term care. The mortgage provider registers a first charge on the property and has first call on any funds available from the sale of it.

There are no monthly repayments to make as the loan, plus roll-up interest is repaid when the plan ends. However, you can repay some or all of the interest, in order to reduce the amount of interest that accrues.

More Information

Feel free to contact us for a free no-obligation consultation on an existing or new equity release plan. Or you can find more information on equity release by downloading our free guide.

Here are some other articles on equity release:

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