Equity release has proven to be a great solution for those who wish to free up some of the equity built into their property, without having to move out or sell the house.
However, once entered into, it is also useful to review your equity release mortgage and explore alternative options. The equity release market has matured over time, and more competition has given rise to a wider range of options at more competitive interest rates. Read on to understand more about the equity release remortgage process and any relevant early release charges.
Equity Release Remortgage Procedure
The first step towards getting an alternate equity release plan is to explore the market and find suitable products. Just a few years back, there were but a handful of companies offering equity release products. But many new lenders have entered the equity release market today, and there is also a much wider range of products available to suit the changing needs of customers. Healthy competition among lenders has given rise to favourable conditions for customers. This has been the main reason for the reduction in interest rate over the years.
Competition breeds innovation, and this sits true with the home equity release lenders. However, an equity release remortgage is not as straightforward as simply repaying your existing loan and switching to a new lender. In effect it is just that, but there are many factors that need to be considered. Additional charges may apply and one may need to consider these to know whether a switch would have any benefits.
Be careful of hidden pitfalls
Many equity release mortgages have an early repayment charge (ERC). This is very relevant to the equity release remortgage decision, as it may have a strong bearing on the viability of the switchover. For example, if your existing equity release mortgage has a high early repayment charge, you may be better off staying with the same provider as any savings may be cancelled out by the early repayment penalty.
But a high early repayment charge does not necessarily mean that an equity release remortgage with a new lender will not be viable. While you may end up paying more at the outset, it is possible that you could still be making considerable savings over the long term, compared to your existing plan. A detailed year by year financial projection needs to be created taking into account all the set up costs. This will help you arrive at the breakeven point, and work out future savings, if any.
Other associated equity release set up costs
Lenders may charge an application fee for setting up the mortgage. If a like for like mortgage is being applied for, it is necessary to take into account the setting up costs while working out the amount to borrow. The applicant will need to approach the existing lender for a redemption statement. This will not only show the balance, but also the daily rate of interest being charged. Setting up a new mortgage can take up to sixty days, knowing how much you’re charged during that time is useful as you can add this amount to the new loan application.
Other fees incurred would be the only upfront fee that would need to be paid on application & that I the valuation fee. This charge is based on the property valuation & can be as little as £99, upto over a £1000 for more expensive properties. Always shop around though & compare equity release deals as some companies will offer a free valuation which enables you to place an application with no upfront fees.
Additionally, there would be an adviser fee for providing your equity release advice & processing your application through to completion. Standard advice fees are around £695, but be wary of costs exceeding this as the work for a £20,000 release is exactly the same as a release of £100,000!
You will also require a solicitor who will act on your behalf. We would recommend a firm of solicitors such as Goldsmith Williams, who are members of ERSA (Equity Release Solicitors Alliance) & have expertise in the remortgage of the older equity release plans with the likes of Aviva & Northern Rock. These fees should be approximately £500.
Points to consider at redemption
Knowing the exact redemption figure on completion will never be an exact science. The date of redemption will never be known at the outset, so a buffer on the amount applied for may make financial sense unless cash savings are held by the applicant to cover any shortfall. Be wary if remortgaging your equity release from a provider where their penalty is linked to government gilts. Companies such as Aviva, Just Retirement, more2life & Partnership use gilts in different ways to assess any penalty that may be levied. Due to the fluctuating nature of these investments, what could be a small penalty one day could end up a larger penalty the next. Therefore, budgeting a set penalty when linked to gilts can be dangerous, if the gilts rates move shortly before completion.
Essentially, an experienced equity release adviser should deal with such matters & be aware of these issues & call for a double check of the redemption amount on the morning of the proposed completion. If this is requested early enough then there should be sufficient time with the rest of the day ahead in order to comply with the banking system. The funds usually needs to be in place by approximately 1pm in order to meet the bank telegraphic transfer (TT) system & therefore meet the deadline for repayment of the old equity release scheme.
Who can I turn to for equity release remortgage advice?
As mentioned earlier, a thorough analysis needs to be done to work out the viability of switching an existing equity release scheme. The best person to do this is an independent equity release expert such as the team at EquityRelease2go. Our equity release advisers can conduct a thorough analysis of the market and recommend a plan which is most suited to your needs.
To access a true equity release specialist who has experience of remortgaging equity release schemes call the EquityRelease2go team on 0800 321 3156 or complete our online contact form.