Savings expert Martin Lewis explains equity release schemes
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Yet many are missing out because they do not realise they are free to switch equity release plan after taking one out. They assume they are locked in for life, whereas in practice they are free to shop around, and could bank massive savings by doing so.
Equity release lifetime mortgages allow older homeowners to raise cash against the value of their home in retirement, without having to sell up.
They and their partner have a guaranteed right to continue living their for life, and will never owe more than their property is worth.
They do not have to make any interest repayments during their lifetime, which roll up year after year instead.
The interest and original loan are cleared when the property is sold after the owners die or go into care.
The lower the interest charges, the less policyholders will owe on death. That means more property wealth will fall back into their estate to be inherited by loved ones.
The average equity release plan charged interest of 6.15 percent in 2016, figures from Moneyfacts show.
This stands at just 3.51 percent today, according to new figures from specialist equity release advisers Age Partnership.
Executive director of later life lending Matt Stirland said switchers are making big savings as a result. “Age Partnership customers who switched plan last year will save a staggering £51,000 in interest over the average 16 year term of their plan.”
Equity release customers should act fast, as the Bank of England has hiked base rates twice in recent months and this is already pushing up lifetime mortgage rates, Stirland warned.
“Rates are starting to creep up but are still much lower than in the past. So now may be the time to considering switching plans before they rise much more,” Stirland said.
Many do not realise switching is an option because their original adviser or broker no longer operates, leaving them without access to advice.
In some cases, the partner who arranged the original plan has died, and the surviving spouse does not understand how it works and the potential saving from switching, Stirland said. “Many don’t involve their other half when taking out equity release, so don’t realise the importance of having regular reviews.”
Anyone who has had their existing equity release loan for 12 months or longer can have their plan reviewed, Stirland said, and a good adviser should do this free and with no obligation.
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Switching equity release plans won’t be right for everyone. “Sometimes early repayment charges may be too high to make changing plans worthwhile. You will not know until you have the review,” Stirland added.
Demand for equity release reached a new record high in 2021, with total lending up 24 percent to £4.8 billion.
Rachel Springall, finance expert at Moneyfacts, said: “Some use equity release to pass on an earlier inheritance to help children get on the property ladder, others to plug the gap in their pension pots, or meet the rising cost of living.”
To find out whether you could save by switching your existing plan, call the Express Money Equity Release Service provided by Age Partnership on 0800 158 2373, or to order your FREE Express Money equity release guide, click here.
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