There are many elderly homeowners who have previously taken out older style equity release schemes, who could now benefit from the lowest ever interest rates in this market.
How can this work?
Quite simply with an equity release remortgage and finding the right equity release advice.
Pensioners maybe feeling the pinch on their savings with low interest rates, however those with lifetime mortgage schemes could be set to benefit if they undertake a review of their existing scheme.
With the best equity release interest rate on the market now starting at 5.57% with the Aviva Flexible Lifetime Mortgage Plan, many will be finding they could save over 1-2% off their current interest rate.
Put simply, anyone with an outstanding balance of £50,000, by saving just 1% on the interest rate would save £500 in the first year alone. Coupled with the fact the differential will get larger as time goes by due to the compounding effect of the interest, this represents many £1000s in savings over the long term for the estate.
Older equity release mortgages with the likes of Norwich Union (now Aviva), Northern Rock, In Retirement services and Hodge had interest rates over 7% more than 5 years ago. With the compounding effect of the interest at these levels, equity release plan holders, or even their children should sit up and take note and consider reviewing their plans now.
How to analyse whether to switch plans
By comparing equity release schemes, you can put both side by side and see the yearly difference between the two. However certain factors need to be considered and this is where advice is necessary. We can calculate the balance of the current plan going forward; however we need to look more closely at the costs of a new plan and the old one if cancelled.
As with a conventional remortgage there are costs involved in switching equity release schemes. The set up costs involved are standard including valuation fee, lenders application fee, legal and broker fees. These could typical come to around £1800-£2000, however with deals available today including free valuations, cash backs & even no application fees, these costs can be reduced significantly.
Companies such as Compare Equity Release.com can help you compare equity release deals and also have the years of experience in switching equity release plans for their customers. They have a unique ‘switch plans’ tool on their website which helps you analyse how much you could save by swapping equity release schemes. It will account for your current balance, any early repayment charges & set up costs of the new plan. An analysis can be found here - switch plans tool.
As lifetime mortgages are designed to run for the rest of your life, by cancelling a scheme early could result in early repayment charges. As part of the switch plan analysis process a redemption figure from your existing equity release company must be sought to establish exactly the current balance of your current scheme. This statement will include: -
- original capital borrowed
- interest added from last annual statement
- any early repayment charges
- administration fee for closing the account.
In addition, there will also be the daily accrual rate of interest. This is the amount of interest being added to your loan on a daily basis. This figure needs to be borne in mind as between submitting an application and reaching completion of your new plan; this interest will still be being added. As the equity release process can take between 6-8 weeks then a calculation needs to be made to add this figure to any amount that is being borrowed.
Find an adviser
Your adviser can then tie up the completion of the new plan with the redemption of the old plan with liaison from the solicitor acting on your behalf. This will ensure all original calculations are on track and whether any surplus funds, if borrowing more or any shortfalls are addressed.
With the equity release market having grown significantly during 2012, its not just on new plans where the emphasis should fall, but also the existing equity release customers who should shop around and to find the best new equity release deal for themselves.
Find out how much you can save by speaking to an equity release remortgage adviser on FREEPHONE 0800 321 3156.
EquityRelease2Go acts as an introducer to FSA authorised companies who offer independent advice.
