If you have had an existing equity release mortgage for a year or more, now may be a good time to review the plan and explore other options. The equity release market has evolved greatly over the past few years. Equity release products are much more flexible today then a few years before. An equity release remortgage with an alternate lender may help you get a significantly better & flexible deal.
Competition has encouraged development
Just a few years ago, there were only a handful of lenders who offered equity release mortgages. However, as the popularity of equity release has grown over the years, many more companies have now entered this market. Increased competition has resulted in lenders driving towards better interest rates and more flexible schemes such as drawdown lifetime mortgages.
One good reason to look towards an alternative lifetime mortgage is that a former equity release scheme could be locked into older and higher interest rates. However, an equity release remortgage can help you obtain a lower interest rate and better terms moving forward. By obtaining a lower rate of interest means less interest will be charged over the longer term, resulting in a lower equity release balance for yourself, should you require further funds and ultimately your children’s inheritance.
Increased flexibility
As competition has increased, it is only natural that the market has become more favourable for customers. Equity release schemes today are much more flexible than they were only a few years before. Earlier in its history, most equity release schemes that were available could only be based on single lump sum loans. This meant that borrowers had no choice but to borrow a large chunk of money to facilitate many years of funding their lifestyle & expenditures.
Equity release plan holders therefore had to budget ahead and keep the majority of the tax free cash in their bank account paying little or no interest on it. Considering the equity release interest rate would be much higher than that obtained in a bank account, then it was certainly not ideal.
However, many more drawdown products are now available that allow people to take a smaller initial lump sums & then take ad-hoc withdrawals as & when required. This means you only pay interest on the amount actually withdrawn, not on the whole capital facility. A major sea change in the concept of how equity release can be managed and offer much more favourable terms.
New equity release deals
Equity release companies can now even offer incentives for customers to switch plans. For instance, the current Aviva Lifestyle Flexi plan not only offers upto £1000 cashback to new customers but also a free valuation & an interest rate as low as 5.57%. This essentially means that there are no upfront costs when applying as the valuation is free and the £1,000 should cover your solicitor’s and application fees! Extra perks from competing lenders, including low interest rates and more flexible options. This can make an equity release remortgage and subsequent lowering of interest rate, more than worthwhile and save your estate £1,000’s over the remaining term of your plan.
Equity Release comparison analysis
Before transferring any older equity release scheme, your equity release adviser must complete a full analysis as to the costs & charges involved in any remortgage.
Many equity release mortgages charge a penalty for early repayment of the loan. The actual charge varies from lender to lender and can even be as high as 25% of the total amount. Some companies use a fixed percentage rate, while most use government GILTS to calculate the amount charged. The difference between the GILT yields on the day the plan is entered into and day it is redeemed is noted and used to calculate the charge. If there is no difference then a penalty is not usually charged. Incidentally, GILT rates are extremely low currently, so taking out one of these GILT related plans could prove a good commercial decision for the future as it is less likely these charges will apply in the future.
The new enhanced lifetime mortgage
A new type of equity release scheme called the enhanced lifetime mortgage is now available. This takes into account the applicant’s health and can maximise borrowing depending on any long standing health conditions or disability. A wide range of health issues including serious conditions such as cancer and heart attack, through to relatively minor but long standing health conditions such as diabetes, may qualify for enhanced equity release mortgages. For those who suffer from a health condition and want to maximise their borrowing with an equity release remortgage, this could be a good option.
Beware of the pitfalls
While some companies today are looking at ways of moving away from charging early repayment penalties, this was not always the case. Many older mortgages may have an early repayment charge clause in place. This could hinder your rationale to do an equity release remortgage as the penalty incurred could effectively write off any potential savings! If you are looking to switch equity release plans there is an excellent tool called the Compare Equity Release switch plans tool advising you whether it would be in your interests to transfer.
Therefore, a detailed analysis needs to be undertaken considering all the factors that have a bearing on the existing mortgage as well as the one being considered.
Next steps…
Seeking help from a professional adviser is always a good idea as an equity release expert has an in-depth view of the market. While it is easy to do perfunctory comparisons on the internet and even get quotes from different lenders, only an independent expert can provide objective and unbiased advice. Your equity release advisor will recommend a suitable alternative for your equity release remortgage.
Call the equity release team at EquityRelease2go.com on Freephone 0800 321 3156 to have a full analysis of your existing scheme.
