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Have Caution when dealing with an Equity Release Remortgage
In today’s world many people have built their inheritance by owning their main residence. However, this still doesn’t negate their requirements for more cash on a day to day basis for everyday expenses, home improvements or maybe a dream holiday!
Equity release is a way of freeing up some or all of the equity that has built up in this property that you have worked so hard for and made many sacrifices along the way.
Equity release schemes are a popular choice in today’s ‘want it now’ social environment and as such there are several options available on the market. For those who have an existing equity release plan, it is possible to shop around for a better alternative and take out an equity release remortgage.
Who would have thought all those years ago in the early days of equity release that one day you would be able to switch lenders! It was considered in those days a ‘one stop transaction’ which once undertaken was considered there’s no going back? Well how times change – along with interest rates, product flexibility & retiree’s attitude towards their retirement & how they view it.
Points to consider first
Many equity release schemes charge an early repayment penalty, also known as early exit fees. These charges are, in theory, supposed to protect the lender from losses incurred due to early repayment of the loan. Before you decide to go ahead with an equity release remortgage, it is important to find out whether your existing plan comes with an early repayment charge clause, and whether it is applicable to you. Different lifetime mortgage companies apply different formula for assessing how their penalty is applied. The following list confirms which companies follow each different type of equity release early repayment charge: –
- Gilts – Aviva, Just Retirement, Partnership, more2life, Norwich Union
- Fixed penalties – LV=, New Life Mortgages, Godiva, Saffron Building Society, Northern Rock, Hodge
- Bank of England base rate – Prudential
- Swap Rates – Hodge Lifetime
Early repayment charges vary from lender to lender and scheme to scheme. Some lenders can charge as high as 25% of the total amount that is borrowed. If the penalty is too high, this can nullify any savings that will be made on an alternative scheme. Some lenders can have a lower rate such as 5% for the first five years and nothing thereafter. Some, especially newer equity release schemes, don’t have any early repayment penalties.
To have a realistic idea of what you will break even with the new scheme, it is necessary to consider the setting up costs as well. These usually include any application fees charged by the lender, solicitor fees, adviser fees and the valuation fee. Sometimes you can find lenders offering extra perks such as a £500 cash back, or free valuation. This can be an attractive proposition for those interested in an equity release remortgage with a newly proposed equity release lender.
How do I calculate the final equity release balance
If you need to apply for a straightforward ‘like for like’ remortgage, then it is necessary to apply for the exact amount that you will require and no less. To do this, it is important to get a redemption statement from the current lender. From this it is possible to find out your daily rate of interest and calculate exactly how much you will owe when the switchover goes through.
Normally it can take up to sixty days for an equity release remortgage to go through. Therefore, your equity release adviser will need to accommodate the extra 60 days worth of interest the existing lifetime mortgage provider will be charging during the time your new application will be being processed. Add this to the redemption statement, also the set up charges that will be levied & you have the amount that needs to be applied for on your new equity release application.
Note – if your original application was linked to Rightmove then be aware that between date of receiving your redemption statement and completion the penalty could still change.
It is important that the whole procedure is managed by an equity release remortgage expert who has access to the correct information & a good solicitor. (preferably from ERSA – Equity Release Solicitors Alliance).
Compare Equity Release have a switch plans tool facility which enables you to compare whether it would be in your interests to remortgage your equity release plan. To establish how much money you could save over the term of your lifetime mortgage scheme click here.
If you have any questions over potentially remortgaging your equity release scheme call the Compare Equity Release team on 0800 028 3142
