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Equity Release Is For Life, Not Just For Christmas

Sunday, November 3rd, 2013

Equity Release is a Lifetime MortgageI recently read an advertisement in a National newspaper extolling the virtues of Equity Release and was surprisingly written on behalf of one of the main equity release brokers based in Preston. All fine I thought until I saw that it was aimed at grandparents struggling to buy Christmas presents for their grandchildren.

 

It created a small furore amongst my colleagues and peers. The blogs were alive with advisers & political commentators slating the fact that equity release was being considered for such short term measures. Not only that, but to take equity release to spend on the grandchildren, would effectively be spending their own inheritance!  With the compounding effect of the interest over the remaining years, this will turn out as one expensive Christmas present.

 

After all, the most popular type of equity release is the lifetime mortgage; appropriately named & for a reason. These schemes are designed for longevity, not short term or for frivolous reasons, where better alternatives may exist.

 

Some were arguing that whatever legal reason people wanted a release of equity for, withdrawing capital was their choice, not ours as advisers, and on the face of it that is correct.

However, when I looked into this scenario further this played on my conscience for personal reasons and I had serious reservations.

 

I have five grand-kids, all under five years old. I had to check with my wife, but on average we spend about £150 to £200 on each. Extravagant ? Maybe. Worth it ? Definitely.

 

With various other gifts for family and friends we spend about £1,500. Agreed not easy on low pension income and little liquid savings.

 

If I was in that position and saw the advertisement I would almost certainly look into the possibility of equity release schemes. I would hope that I would employ the services of an independent equity release adviser i.e. someone like me who would strongly advise not to go down this route.

 

And here are the reasons why:-

  1. The minimum initial lump sum on any equity release scheme is currently £10,000. This would have to equate to £2,000 for this Christmas, £8,000 in the bank for the next 4 Christmases. The cash in the bank may attract 1-3% interest whilst I would be paying up to 6% interest on the mortgage. Not a good idea
  2. The set up fees, depending on the lender, could be as high as £2,000. Acceptable if you are considering a large expense such as buying a new car, a holiday of a lifetime, clearing an mortgage or giving the grand-kids a start in life for house deposit or university fees. Therefore, as a proportion of a £10,000 release, set up costs can be a considerable percentage of the initial release. Not so good to borrow £2,000 for Christmas gifts on this basis.
  3. If, like me, your intended beneficiaries are your grand-kids then they are actually buying their own gifts via their future inheritance. Let’s assume £10,000 on a normal roll-up lifetime mortgage, even on the lowest rate with Aviva Flexi Plan currently at 5.62% (5.8% APR) and deducting the set up costs from this, would in 10 years have accrued to about £17,276. So 10 year’s worth of Christmas gifts has cost £7,276.

 

I applaud the fact that some of the broker companies are bringing Equity Release to the fore and the pros and cons of equity release schemes are highlighted to the general public.

 

As a dedicated Equity Release specialist I am convinced of the merits of raising capital by these means as long as the following measures are taken: –

  • All possible alternatives are discussed with your adviser and broached with the children. Equity release is classed as a loan of last report by ourselves
  • The initial release matches your needs for the first 12 months of your spending plans i.e. don’t take any more than you actually need
  • You receive independent equity release advice from a FCA (Financial Conduct Authority) qualified adviser
  • The schemes recommended are members of the Equity Release Council (ERC) which ensures they come with the equity release code of conduct indoctrinated
  • You receive separate legal representation from that of the lenders. As from 2014, this will need to involve a face-to-face meeting with your solicitor for added protection
  • You receive a Key Facts Illustration and Suitability Report covering all aspects of your adviser’s recommendation including set up costs, interest rate, future balance & early repayment charges.

 

I have personally seen the benefit equity release has made and have the testimonials to show the satisfaction & difference a lifetime mortgage can make to someone’s life.

If taken for the right reasons, under the right circumstances and with the right advice, equity release schemes can prove to be the right choice.

 

If you require further information on whether equity release schemes could be the right choice for you, please contact Barry Adnams on 07989 281108 or email barry@equityreleasesupermarket.co.uk

 

Is It Possible To Remortgage My Current Equity Release Scheme?

Sunday, August 19th, 2012

Throughout the history of equity release schemes, now is as good a time as any to consider remortgaging your existing equity release plan. So whether you are looking to borrow additional money or looking for a lower interest rate, a review of your current equity release scheme could make sound financial sense.

 

With the equity release market constantly evolving and interest rates having fallen significantly over the past year or so, now is the right time to analyse whether you could get a better deal than your current equity release scheme. 2012 has brought about new plans and innovations in the lifetime mortgage market, so whether you are looking to borrow additional money or looking for a lower interest rate a review is always essential.

 

As a consumer, it is always good to keep exploring the market for better options. For those who already have an equity release plan, one of the most common concerns is whether they can easily switch from one scheme to another. Consider equity release schemes like a conventional residential mortgage; they are basically the same apart from the fact that with an equity release scheme there are no monthly payments.

 

Why consider an equity release remortgage?

The main reason for considering switching equity release plans today would be due to the fall in lifetime mortgage interest rates. Interest rates on borrowing are much lower today than a many years ago and with rates now as low as 5.57% on the Aviva flexible lifetime mortgage plan, considerable compound interest could be saved over the long term. Combine this lowest ever interest rate with the current crop of deals available such as Aviva’s £1,000 cashback and free valuation, makes an equity release remortgage to Aviva an great inheritance saving action plan.

 

Which are the best schemes to switch to?

Another important change in the market is that many new types of equity release mortgage have become available today. For instance, lenders may now have much more flexible terms on the loan than previously. Over 5 years ago there was no such term as a ‘drawdown lifetime mortgage’.

Now we have the likes of Just Retirement, Aviva, LV= and an even enhanced drawdown equity release plans (where poor health exists) from companies such as more2life. We now also have a repayment facility included in a new plan from Hodge Lifetime. Hodge allow 10% overpayments each year with NO early repayment charges and even no penalty on downsizing after 5 years of the start of the plan.

Not only do we have roll-up schemes, but increasingly popular are becoming the interest only lifetime mortgage schemes from the likes of Stonehaven. Whereas in the past the interest could only roll-up, nowadays with Stonehaven equity release you can actual repay the interest in order to maintain a level balance on your mortgage. This is a great idea for those who wish to take some equity out of their property, but ensure that a guaranteed amount will only be payable to the lender at the end of the day.

 

Therefore, a regular review of any equity release scheme is recommended as your circumstances may have changed, or your future plans may be different from those years ago when the original plan was taken out. Considering all this, it is likely that if you’ve had an equity release mortgage for some time now, you should be able to find a better and more suitable loan in today’s’ marketplace.

 

Are there any pitfalls?

Switching to an alternate scheme is not just a matter of searching the internet for equity release comparison sites and immediately applying for a new equity release loan. Several factors need to be considered carefully in order to work out whether a new loan is viable. Even though the terms of lending may look rather attractive on paper, these need to be considered in the light of your existing loan, particularly whether any early repayment penalties may exist.

 

Early repayment charges are penalties charged by lenders which are meant to protect the lender from any losses made due to an early repayment of the loan. This penalty could be a lump sum, or a percentage of the total amount borrowed. They could be as high as 25% of the principal amount or 5% of the amount borrowed. In order to make a considered and correct decision about switching, it is important to get more information on equity release remortgages.

 

How do I go about remortgaging?

The most appropriate person to seek advice from is a local independent equity release adviser. Your advisor can give you impartial and expert advice on which equity release plans may now work best for you. Your adviser can calculate exactly when you could start to make savings by switching to a new equity release plan. This would be assessed by considering all the costs involved in setting up a new loan, as well as taking into account any penalties.

On your behalf and with your written authority, your adviser will request an equity release redemption statement from your existing provider. This will establish exactly how much is outstanding, the interest rate being charged & any early repayment charges that may apply. Armed with this information, a full analysis can then take place to ascertain whether it is sensible & cost effective to switch plans.

 

So if you’re looking to borrow more from your existing plan, or wanting to reduce the future compounding effect of the rolled-up interest, always get specialist advice.

 

The quality of equity release advice can make significantly difference to the inheritance you leave behind. Contact the equity release remortgage experts at Equity Release Supermarket to take away any worry and ensuring you make the right decision for yourself and your beneficiaries.

 

Call freephone 0800 678 5159 and request a FREE equity release remortgage analysis today. Alternatively, complete our contact form with details of your current plan and one of our advisers will contact you to discuss further.

 

 
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