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Steps to Finding the Best Equity Release Scheme

Sunday, December 7th, 2014

Best equity release schemeEach year the equity release industry celebrates its achievements at the Merchants Taylors Hall with its version of the Equity Release Awards 2014. This year in particular, equity release schemes have been taken out in record amounts & have led to unprecedented growth. This has been for a number of reasons, but primarily the innovation of new equity release plans from the likes of Aviva, Hodge Lifetime & lately Stonehaven.

 

However, it is the Aviva Flexible Lifetime Mortgage Plan that here at Equity Release Supermarket has seen the greatest impact & has helped many of our clients achieve their retirement goals. It was therefore no surprise that Aviva won the category of Best Lifetime Mortgage provider in 2014. This followed a series of enhancements to their lifetime mortgage plans this year, coupled with the lowest equity release interest rates, currently starting as low as 5.63% (5.83% representative APR).

 

These successful changes include:

  • Allowing clients to voluntarily repay up to 10% of the original capital borrowed each year, in up to 4 installments with a minimum of £500 a time.
  • On joint life equity release cases they now allow the surviving partner to sell their home and repay the scheme without penalty as long as it’s within 3 years of the first person dying or entering long term care.

 

Thanks to these extra features, Aviva has increased their market share even further but despite winning their equity release award it would be wrong to view their product as the best on the market for everyone. In order to find the best equity release scheme for you it’s important to get independent, whole of market advice from a company like Equity Release Supermarket.

 

Equity Release Supermarket’s philosophy is to spend valuable time to find out exactly what you’re goals are so that we can recommend the most appropriate scheme based specifically on these requirements. So, once we’ve gathered sufficient information based on your current situation, identified no alternative solutions exist, it is only then that we would enter the realms of recommending equity release schemes.

 

But how do we work out which equity release scheme is the ‘best’ plan for my clients? We consider a range of factors, such as:

  • Equity release interest rates
  • Maximum equity release calculation including maximum cash reserve facility
  • Early repayment charges
  • Set up costs
  • Flexible repayment options
  • Health and lifestyle factors for enhanced lifetime mortgage plans
  • Future retirement plans
  • Inheritance plans – attitude to risk

 

Seven Factors to Help Find the Best Equity Release Plan

Equity release schemes are constantly innovating and keeping up with their progress can be a minefield for those looking for the best equity release plan today. To help provide guidance on understanding the various aspects of equity release plans that can influence this decision, I have provided seven features and areas of research that Equity Release Supermarket advisers would analyze and discuss with you.

 

  1. Best Interest rates:

There are some excellent online comparison websites such as www.EquityReleaseSupermarket.co.uk where you can compare the best equity release deals in the market at any given time. The equity release comparison sites will currently highlight Aviva as offering some of the lowest interest rates for both drawdown lifetime mortgages and their lump sum counterparts.

However, simply offering the lowest lifetime mortgage interest rate may not make their scheme the ‘best’. Aviva do charge a higher interest rate to access the funds in any cash reserve facility than the initial rate and they cap the reserve amount if you initially release less than 50% of the overall loan amount. This may not therefore be suitable if you are looking to have a maximum cash reserve facility for your future retirement needs.

 

Therefore, it is down to your equity release adviser to assess & understand what your priorities are in leading to their recommendation of the best equity release scheme for you.

 

For instance, if you need to take the maximum equity release loan from your property, interest rates tend to be higher than the drawdown lifetime mortgage schemes. Hence, the ‘best’ scheme could depend on any of the other factors names above. The possible reason for the higher interest rate for the maximum equity releases could be the potential of invoking the no negative equity guarantee is likely to be greater the higher the release borrowed. This cost being passed on by way of the higher interest rate to compensate.

 

Currently, at the time of writing, the lowest lifetime mortgage interest rate is 4.75% (5.10% representative APR) which is the Hodge Retirement Mortgage. If you want to make monthly payments of interest to maintain a level balance, this scheme is excellent but it wouldn’t be the ‘best’ scheme if you don’t want to make any interest payments. As you can see, the lowest equity release interest rate alone does not determine it being the best scheme.

 

  1. Maximum Equity Release Plans

Equity Release Supermarket would always recommend that you only release the capital that you need, rather than releasing the maximum loan. This one area alone, in assessing the best equity release scheme, can have the greatest influence on the final inheritance for your children or beneficiaries. In fact, this aspect we find is where clients need to be guided carefully by their adviser, as many do not understand the consequences of taking too much equity from their home.

 

In fact, drawdown lifetime mortgage plans are now the most common form of equity release taken in 2014 & will surely be for equity release 2015 aswell. By taking the home equity plan funds in small staggered amounts, rather than all upfront makes practical sense for your own future balance & the inheritance for your beneficiaries. These drawdowns can be taken in little amounts as an initial £10,000, and then followed by smaller £1,000 tranches from the likes of Hodge Lifetime. This can be utilised to suit any future spending plans as & when they arise.

 

During my 15 years of advising clients on equity release, one of the most common queries I receive is ‘Can I access further funds?’

Let’s look at an example:

 

Margaret and Graham are both 70 and live in a bungalow worth £300,000. They want to be able to take regular holidays and buy a new car. In the future they’d like to gradually improve their property and supplement their income. My advice was to take an initial loan of £25,000 and set up a reserve facility. In order to work out the ‘best’ scheme for them we discussed whether the interest rate or the size of the reserve was more important to them. They opted for a larger amount of money on reserve. Therefore, after the initial loan – Pure Retirement offered a cash reserve of £83,000, while the Aviva Flexi Plan with a lower interest rate only offered a reserve of £48,000.The clients therefore opted for the Pure Retirement Drawdown Plan based on the future reserve facility.

 

Another important factor to a recent client was that she wanted the certainty that the funds available on reserve were guaranteed to be in place. Many lenders do not ‘guarantee’ the future of their drawdown facilities in case of change of circumstances, economic reasons or they just decide not to lend again in the future.

 

My client was concerned in case the lender withdrew her cash reserve funds in the future. In her circumstances LV= proved to be the best equity release scheme for her as they’re the only company to offer a guaranteed drawdown reserve, which is guaranteed to be in place for a minimum of 15 years.

 

  1. Best Early Repayment Charges (ERC’s)

Equity release schemes are designed as a lifetime commitment and are not aimed for short term borrowings or people who wish to repay the balance before the plan ends; on death or the last person moving into long term care. That said, there are a growing number of people who would possibly repay their equity release scheme early; due to change in circumstances, future health reasons or maybe family reasons. Therefore the ‘best’ scheme would be one that offered flexibility on early repayment charges over a limited number of years, either none at all or the lowest fixed rate possible if acceptable to the client.

 

An equity release company plan that has considered the topic of early repayment charges has been Hodge Lifetime. Two of their lifetime mortgage plans have been carefully thought out on this particular subject. The Hodge Lifetime Mortgage Plan allows homeowners the ability to downsize after 5 years of taking their plan & repay their lifetime mortgage with NO penalties. In fact even leading upto this 5 year period, should one downsize the penalty reduces by 1% each year; from 5% down to 0% over this duration.

 

The second Hodge product that assists with early repayment charges is the Hodge Retirement Mortgage. This product is an interest only lifetime mortgage and has a fixed interest rate for a period of 5 years. The Hodge Retirement Mortgage therefore mirrors this time by aligning the early repayment charges (ERC’s) to match the same term. Subsequently, the early repayment charges are just 5% for the first 5 years of the retirement mortgage term.

 

Most equity release lenders use government gilts as a measure in working out any potential ERC’s. This means that the early repayment penalty is variable and could be as high as 25% of the initial loan amount. For the standard lifetime mortgage plans, LV= are currently the only company who offer a fixed early repayment charge, which is 5% for the first 5 years and 3% from years 6 to 10. After the 10th year you can repay the scheme without penalty, so this may prove to be the ‘best’ scheme for some clients knowing what their future holds, or the Hodge Lifetime schemes should they have plans for moving house after 5 years.

 

  1. Equity Release Set Up Costs:

Typically the lowest set up costs doesn’t necessarily mean the ‘best’ plan, although keeping a check & comparing equity release set up costs is important for a number of reasons, particularly to save money! Why pay more to a broker for their advice fee when another company can advise on exactly the same plan, but for a lower cost.

 

Equity releases set up costs are made up of a series of fees levied by different parties to the equity release process. These consist of the valuation fee, lenders application fee, solicitors’ fees & your adviser’s advice fee.

 

Valuation fees vary between lenders, however through certain specialist brokers such as here at Equity Release Supermarket there are now many lenders that will offer ‘free’ valuations by process you application through us.

 

Lender application fees can also vary, with some either being added or deducted from the release. Remember if the application fee is added this will cost more over the long run if the interest is to compound with no repayments made. The Hodge Retirement Mortgage application fee is the highest at £995, but they do offer the lowest interest rate. Pure Retirement offer a cash-back on some of their plans which can cover all of the set up costs, but their interest rate isn’t the lowest. Just Retirement offer one of the lowest admin fees at £500, but not necessarily the lowest interest rate either. As you can see this is an area where careful advice is needed to find the best equity release plan.

 

  1. Interest & Capital Repayment Options

The major change to equity release schemes in the past few years has been the ability to pay either monthly interest or voluntary interest payments in order to cover some or all of the accruing interest. Again, the lowest interest rate might not equal the best plan.

 

We have already identified that the Hodge Retirement Mortgage offers the lowest rate, but you need to maintain a fixed monthly payment throughout its whole term. However, companies such as Stonehaven & More2life will offer an interest only lifetime mortgage too. However, rather than the concern of possible repossession should payments not be maintained, both Stonehaven & More2life will allow the switch from monthly payments to roll-up (ceasing payments), thus removing the concern of repossession.

 

Schemes which offer voluntary repayments, such as the Aviva Flexi, Hodge Lifetime and with effect from 1st December Stonehaven Interest Select range all allow upto 10% capital repayments. They all charge a higher interest rate, but they do include greater flexibility with regards to permitting these 10% voluntary payments.

 

The Hodge Flexible Lifetime Mortgage Plan & Aviva offer these schemes, and have now been joined by Stonehaven. Having a flexible approach has proved a popular way forward for many that wish to retain control over their future balance. These voluntary repayment lifetime mortgages can be planned so that either just the interest is repaid, thus keeping the balance level, or repaying the full 10% and actual seeing the mortgage balance reducing & even repaid over a period of 16-17 years!

 

  1. Health & Lifestyle Factors

Your health & lifestyle won’t affect your eligibility for equity release but can actually improve the amount you receive, or the interest rate you obtain! There are currently four equity release companies that offer enhancements to their schemes.

 

More2life & Partnership Assurance specialise in enhanced lifetime mortgages, however they may not be the ‘best’ plans as the interest rates are often higher. However, this for some retirees interest rates may not be priority, but the maximum equity release lump sum is. Aviva also offer enhanced lifetime mortgages and can either offer a higher maximum release on its Lump Sum Max plan or alternatively reduce their interest rate, if the maximum is not required & taken on their drawdown flexi plan. Depending on your health criteria, some lending may not accept certain ailments. However, certain enhanced lifetime mortgage companies such as Just Retirement, will go deeper into their health & lifestyle questionnaire & consider illnesses the others won’t accept.

 

  1. Inheritance guarantees

It’s sometimes important that my clients can leave a set inheritance for their families and some lifetime mortgage providers, such as More2Life, Aviva & New Life offers such guaranteed inheritance features. The inclusion of these guarantees can impact the interest rate and the amount of capital available, so careful consideration is needed to work out the ‘best’ scheme.

 

On forgotten equity release scheme that is over looked by many advisers are home reversion plans. Companies such as Bridgewater, New Life & Crown still offer this older form of equity release. Its popularity has waned considerably over the years, however the major benefit of home reversion plans is their ability to guarantee an inheritance at the end of the day. This works by selling a percentage of the property to the reversion company in exchange for a cash lump sum. The proportion of the property not sold is guaranteed to be passed on to the heirs once the house is eventually sold.

 

Summary

Overall, equity release advice is a specialist area of retirement planning. As we’ve seen there isn’t one scheme which is the ‘best’ on the market or fits all. There are far too many features & personal issues to consider that could have relevance to your recommended equity release plan. Thankfully, there are plenty of different options from many different providers. By receiving quality, bespoke advice from Equity Release Supermarket we can work out the ‘best equity release scheme‘ for you, without any obligation.

 

If you are looking to source the best equity release scheme for your particular circumstances & in need of specialist advice then please contact me – Mark Rumney on 07957 974826 or email – markrumney@equityreleasesupermarket.co.uk

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How Your Medical History Can Enhance the Maximum Equity Release

Saturday, November 15th, 2014

Enhanced lifetime mortgage lifestyle questionnaire

While equity release schemes have been available for many years, the concept of the enhanced equity release seems to have been a more recent addition. However, the history of the impaired equity release has been around for almost a decade.

 

Companies back then such as Partnership & Hodge did offer enhanced or impaired life home reversion schemes. In fact Hodge themselves did have an enhanced lifetime mortgage that was withdrawn only pre credit crunch era. These plans were not sold a great deal and their impact was minimal.

 

More recently enhanced lifetime mortgages have seen a resurgence in popularity as they have been redesigned & improvements made to the underwriting process. Enhancement to an equity release mortgage means that the amount of equity available to you can be increased based on your current or pre-existing health conditions. It works similar to the impaired rates offered from annuity providers whereby based on a medical questionnaire, the lenders underwriters will assess the maximum equity release available.

 

Equity Release providers who currently offer Enhanced Lifetime Mortgage rates are:

  • Aviva
  • More2Life
  • Just Retirement
  • Partnership

Aviva equity release offer 2 plans; the Aviva Lump Sum Max offers a higher loan amount if you qualify for impaired terms. Alternatively, you could benefit from being charged a lower interest rate on the Aviva Lifestyle Flexible Option, with rates starting as low as 5.63% (5.7% representative APR).

 

More2life & Partnership offer a lower qualification threshold than Aviva for qualification on their enhanced lifetime mortgage schemes. Where Aviva offer one enhanced lifetime loan-to-value ratio, More2life & Partnership provide different levels of maximum release based on how serious the impairment is.

 

Just Retirement being specialists in the enhanced annuity market take a more scientific approach & will consider more illnesses including COPD. Their actuaries will individually assess each Lump Sum Plus case to determine the maximum equity release available.

 

What illnesses qualify for an enhanced lifetime mortgage?

 

Most of the impaired health conditions, which can qualify for enhanced terms, are similar with all of the above lenders and include-

  • Height and weight
  • Smoking details
  • High blood pressure
  • Heart attack
  • Diabetes
  • Stroke
  • Angina
  • Cancer
  • Parkinson’s Disease
  • MS
  • Early retirement due to ill health
  • Even whether prescription medication is being taken

The amount of extra money that you can release depends on three factors; age of the youngest applicant, the value of the property & which conditions you have & the level of severity of each impairment.

 

You may simply qualify for an enhanced lifetime mortgage based on your height and weight which is represented by your BMI (Body Mass Index). Typically, the greater the number of conditions you have, the higher the maximum equity release loan amount that is available.

 

What are the qualifying criteria for an enhanced equity release?

 

The minimum age is 55, which out of the four equity release companies only Aviva will accept and additionally there is no maximum age. Joint life customers can also apply although it’s usually the health of the younger person which affects any enhanced rate. The minimum property value can be as low as £60,000 from More2life while properties must be located in England, Scotland & Wales with Aviva also lending in Northern Ireland. The lowest enhanced equity release available is £10,000 with no upper limit from the likes of Aviva.

 

How much more tax free cash does enhancement provide?

 

A recent client of mine, age 69 had a property valued at £250,000. Based on standard terms he was able to release a maximum equity release loan of £86,250. However, he suffers with high blood pressure and diabetes. Based on his ill-health & completion of a health & lifestyle questionnaire, the loan amount was increased to £104,500 by More2Life, so he was able to release an extra £18,250.

 

He set the More2life enhanced lifetime mortgage plan on a drawdown basis. This enabled them to release an initial £30,000 and still leave a reserve facility of £74,500 with More2life which he can access in the future without incurring further fees. This meant he has the flexibility of a drawdown lifetime mortgage but with the benefit of an enhanced drawdown facility.

 

Will I need to have a medical?

 

The good news is that you won’t have to attend a medical to qualify for enhanced terms. Lenders ask you to complete a health & lifestyle questionnaire and sign to confirm that your medical details are correct. Following submission of the equity release application, each lender may simply write to your doctor to confirm that your conditions are accurate, so that you qualify for the best terms possible.

 

If you are a smoker, they may ask you to undergo a simple non-invasive test and require you to confirm your consumption and the extent of your smoking habit. The test, which they arrange and pay for, is carried out by a qualified nurse in the comfort of your own home.

 

How do I find out if I qualify for enhanced terms?

 

You should always to seek advice from an independent equity release specialist. As part of the process of checking whether equity release is suitable for you or not, we will always ask clients for details of their medical history to ensure that we can tailor any advice to their fit their circumstances. At the end of our initial meeting we would then conduct research from the whole of the equity release market to find the most suitable plan. If you do qualify for an enhanced rate, we can then produce an equity release key facts illustration to explain how the lifetime mortgage works.

 

Where can I get more information?

We have information on all the enhanced products in the compare equity release deals section of our website along with the useful enhanced equity release calculator.

 

If you wish to speak directly with me, please feel free to contact me direct on 07415 275669 or email simon@equityreleasesupermarket.co.uk for further information. There’s no obligation and any information you provide is confidential.

 
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