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What are the Best Early Repayment Charges on Equity Release Schemes?

Saturday, August 18th, 2012

If you are considering taking equity release and early repayment maybe on the horizon, then selecting the right equity release plan is essential to avoid potentially high penalties. Here we illustrate the pitfalls of early repayment of an equity release scheme and what to look out for, if one day you are considering paying off your plan early.

 

Equity release schemes are in simple terms a mortgage that runs for your lifetime & commonly has NO monthly repayments. The principle reason for the growing popularity behind equity release schemes is that they enable you to free up the equity tied up within the bricks and mortar of your home.

 

With hindsight, once we all reach retirement age we should all have sufficient income & capital in the bank to meet our retirement objectives. However, such forward planning doesn’t always materialise for one reason or another; ill-health, redundancy or poor investment return can always interrupt anyone’s best laid plans. So what contingency plans can one put in place, or how can one minimise the risk of achieving retirement age without the funds to enjoy the longest holiday of your life?

 

Equity release schemes

We have witnessed the virtues of equity release mortgages & how they have come to the rescue of many retirees over the past 15 years. However, what can be a life saver initially can become a financial liability in the future unless professional equity release advice is provided by a qualified & experienced lifetime mortgage adviser.

 

One of the fundamental advances in the emerging equity release market is the protection this industry is now affording to its customers. With FSA (Financial Services Authority) regulation, trade bodies such as the newly formed Equity Release Council (formerly SHIP) & in-built protection features such as the no-negative equity guarantee, equity release clients have never been more re-assured of the improvements in these lifetime mortgages for the over 55’s.

 

What are the potential pitfalls of equity release schemes?

One area that hasn’t seen much improvement in the equity release marketplace would be the impact of early repayment charges (ERC’s). As equity release providers are lending over a potentially long duration; in some cases in excess of 40 years, they need to set their long term borrowing plans accordingly. Equity release on the face of it may seem very profitable to lenders, however for a large initial outlay it can be many years before they receive their capital & interest in return. To ensure that their profitability & future of the plans remains they must make contingencies in case of early surrender.

 

Hence, like any mortgage the lender, equity release providers need to include a penalty on early repayment of an equity release plan. To many this would not be seen as an issue as we may have all experienced some form of ERC with our mortgage companies in the past. The difference between residential penalties & equity release penalties are the basis of, the size, & duration that the penalties can be levied over.

 

What kinds of penalties are charged?

Whereas all residential mortgages charge some form of fixed penalty over a fixed number of years, equity release schemes in general are nothing like. The majority of lenders have now reverted to the old Norwich Union formula of using government gilts as the basis for their early repayment charge. Companies that have now followed suit are Just Retirement, more2life, Partnership, Stonehaven and more recently New Life Mortgages switched from a fixed rate basis onto gilts also.

However, there are a couple of exceptions to this rule who come from the likes of: –

 

  • LV= (Liverpool Victoria) – who still use a fixed penalty of 5% of the capital borrowed in the first 5 years to 3% in the next 5 years, then nothing thereafter.
  • Hodge Lifetimewho use a combination of a fixed rate penalty over 5 years and swap rates which relate to the long term effect of interest rates. However, they do have the advantage that if you move after 5 years, then no ERC’s will apply. Additionally, they permit 10% overpayments each year without penalty.

 

Is it all gloom and doom?

The answers to this could be both yes and no; depending if you have an existing equity release plan or not.

For equity release customers who took out a gilt related plan in the past it could be bad news. However, remember this is only bad news if you intend to repay early! If you have no intentions of early repayment, then no ERC’s would be applicable. All equity release schemes will NOT apply any penalty on repayment of the equity release due to death or long term care. Additionally, with the Equity Release Council (SHIP) rules in place if you are moving or downsizing you can take your existing scheme with you with no penalty. Equity release schemes have clearly made it known they are a lifetime mortgage. Therefore, the plans are not designed to provide short term borrowings.

 

You could however hedge your bets on occasions, but as the phase goes…let the buyer beware. For instance, with gilts rates currently at such low levels, unprecedented in the years that equity release has been around, could now be a good time to consider a gilt related equity release plan over the medium term?

The reason for taking out such a plan now would be the fact that these gilt related ERC equity release providers will not levy an ERC should the gilt rate have risen since the mortgage was taken out. In fact companies such as Aviva won’t charge an ERC if the gilt rate remains the same or even falls by a margin of 0.12%.

It is a gamble, as there is still much uncertainty in the economy, but the markets would expect that gilts are sure to go back up in the future when interest rates maybe rise. When though is the golden question.

 

So, gauging which equity release scheme is the best doesn’t all boil down to interest rates. A combination of assessing your future plans and how much, and when you actually require these funds can be just as important.

 

Afterall, what is the point of taking out an equity release plan with Aviva an interest rate of 5.66%, when upon early repayment you could be charged an enormous penalty of upto 25% of the amount you originally borrowed! It may be better to pay a slightly higher rate, with the knowledge that you either have no penalty or at least a known penalty from the outset.

 

Having an experienced equity release adviser is paramount in helping to decide which is the best equity release scheme, for your particular circumstances. By not only looking at your current situation, but also your future plans; your requirements now and also in the future will help your adviser assist in making the right equity release decision for you.

 

Equity Release Supermarket provide independent equity release advice from the whole of the market. Having the experience of actually working with the likes of Aviva, Prudential, NatWest and Norwich Union, gives our advisers the advantage of knowing the ins and outs of lenders early repayment charges and being able to give quality advice.

 

If you have any questions about equity release early repayment charges then please call one of our specialists on 0800 678 5159 or email mark@equityreleasesupermarket.co.uk.

 

No Early Repayment Charge Equity Release Plan Launched by Hodge Lifetime

Monday, April 2nd, 2012

Following in the steps of the Stonehaven Interest Select plan, Hodge Lifetime are launching a new equity release plan with repayment options that include NO early repayment charges.

Previously, only Stonehaven equity release had created a niche in the lifetime mortgage market by offering an interest only lifetime mortgage. Stonehaven allow you the facility to repay the interest charged monthly, thus maintaining a level balance.

However, Hodge Lifetime has now created their own niche product, by offering a roll-up equity release plan with a spin. The unique feature of the plan is the facility of allowing partial repayments of upto 10% per annum with no penalty. This is a first in this previously inflexible early repayment charge equity release UK market.

 

The Mechanics

The option to repay without penalty applies after the plan has been running for at least 12 months. You then have the possibility of repaying all of the interest & an even an element of capital, if you wish. The minimum repayment is £500.

The major advantage of this lifetime mortgage is that no penalty would apply to this repayment as long as no more than 10% of the initial capital borrowed is repaid.

An example of this would be someone borrowing £25,000 initially. After, 12 months of the plan running they can then repay upto £2,500 each year thereafter. With a launch interest rate of just 6.31% annual equivalent, by paying the full 10% allowance would allow you to repay not only the interest but also the capital. The Hodge Lifetime Plan could then effectively be even used as a form of flexible lifetime repayment mortgage!

 

Background to Hodge Lifetime

Hodge Lifetime introduced the very first equity release plans in 1965 and have continued to earn a reputation for reliability ever since. Hodge Lifetime is a subsidiary of Julian Hodge Bank and is a founder member of SHIP (Safe Home Income Plans).

 

Plan Facts

The Hodge Lifetime Lump Sum Lifetime Mortgage allows you to take a single cash lump sum with a fixed interest rate for life. Plans start at age 60 & there is a minimum property value of £100,000 with a £20,000 minimum initial withdrawal limit. The plan is available in England, Wales & mainland Scotland.

Hodge Lifetime’s standard early repayment charges only apply for the first 5 years on a 5,4,3,2,1 basis. There is also an additional potential variable repayment charge dependent upon the movement in 25 year interest rate swap rates.

However, this variable penalty will be waived after 5 years. This ‘Downsizing Protection’ feature allows you to repay the Hodge Equity Release Plan with NO penalty if you move home after 5 years.

However, the main focus surely on the Hodge Lifetime Lump Sum equity release plan will be possibility of repayment the interest with a choice of when & how much.

No other equity release schemes provider will permit this at present with so much flexibility. Hodge will allow two payments per annum subject to the 10% maximum repayment & no penalty.

 

Who Would the Repayment Facility Benefit?

People who maybe wish to inhibit the traditional roll-up effect of their equity release plan would find the Hodge Lifetime plan of benefit.

Those unable to commit to a fixed monthly repayment as their preferred choice would be to make ad-hoc repayments once a cash sum has been saved.
People who may receive an unexpected windfall in the future
Parents who may wish to gift to their children for financial reasons (e.g. house purchase) knowing they will be repaid over a future term
Those at Pre-state pension age, need a capital lump sum now, but may wish to repay chunks back in the future from their extra income
The list could go on…

 

What to do next…

If you have been dissuaded by equity release early repayment charges in the past, then take a close look at this exciting new plan from Hodge Lifetime. The ability to repay 10% off the balance each year with NO penalty is unique.

With an opening offer of a reduced valuation fee of £99 for property values upto £350,000, this certainly looks likely to follow hot on the heels of Stonehaven’s Interest Select Plan.

 

For further information or to request a quote please visit Equity Release Supermarket’s dedicated Hodge Lifetime Lump Sum equity release page. Alternatively call the team on 0800 678 5159.

 

On Why Finding A Good Equity Release Consultant Is A Must

Wednesday, June 22nd, 2011

The amount of equity you own is the term used to describe the value of a home less any mortgage or secured pending on it. Equity release allows you to free up this money tied up within your home.

 

The equity release process will allow you to receive a tax free, lump sum of capital allowing you to spend it in whatever way that you choose.

 

An obvious disadvantage is that you will not be able to hand down all of your property to your offspring. Nevertheless, you do get to live out the remainder of your life in your home, rent free or till you move into elderly care.

 

If you are considering an equity release scheme, the best way to get started would be to approach an expert. Some organisations which provide equity release schemes also provide a free consultation, so remember to take advantage of their services. Some research of the advisor would be of benefit as they must be regulated by the FSA (Financial Services Authority) & have an individual registration number with them. The equity release adviser should therefore be found on the FSA website register.

 

Ensure they are independent, which means they are free to deal with ANY equity release provider in the market. So ask. Some companies purport to be whole of market, however upon closer analysis they only deal with a handful of companies. You may therefore be missing out on a beneficial feature of an equity release scheme that they do not have available. This could save you £1000’s in the long run & could prove costly if the wrong equity release plan was chosen.

 

Your advisor will let you in on all the vital details regarding the procedure. This will be after the equity release adviser has collated all the necessary facts regarding one’s current situation. Guarded with this information, & any soft facts provided such as ‘how important is that you leave part or all of your property to your beneficiaries?’  will be asked. Also income & whether you are in receipt of means tested benefits is important as this will reflect on which equity release schemes are advised upon. The equity release consultant can then document & record this stage of the lifetime mortgage process.
Once an accurate financial picture has been ascertained & observed the clients objectives, the equity release adviser can then discuss the mortgage options available. These would include an explanation of the various schemes available to suit. Included in this would be roll-up equity release schemes, home reversion plans & interest only lifetime mortgages such as the Halifax Retirement Home Plan or the Stonehaven Interest Select.

 

You do not have to give them an instant decision; after all, going for an equity release scheme is a big decision and something which should not be rushed into.

Upon presentation of the equity release advisers recommendations a Key Facts Illustration must be offered to you. This would include a summary of the scheme in principle, costs & charges, future balance & the commission payable by the lifetime mortgage providers. This is quite a comprehensive overview of the scheme & covers the finer details, as well as the main features, such as the no negative equity guarantee & early repayment charges etc.

 

Once you have made your decision, all you have to do is simply call your advisor and give them the go ahead. They will have all your paperwork taken care of, contact your solicitor and keep you updated about everything, right to the time that you get your money released.

 

A professional & courteous adviser will confirm the funds have been released & offer any after care service in the future; for example when additional funds are required such as on a drawdown equity release scheme.

 

As a company Equity Release Supermarket keep contact with its clients to advise on new products & interest rates in the future as it is important to keep abreast of the market as & when more competitive products become available.

 

Independent & award winning equity release specialist Equity Release Supermarket offer all the above benefits & quality of service that the testimonials at the bottom of the home page illustrate.

 

To discuss your options in the release of equity from your property call freephone 0800 678 5159 today or alternatively complete our contact form & one of our advisers will be in touch

 

Looking For Some More Information On Equity Release Schemes? Read on…

Tuesday, June 7th, 2011

Equity release schemes have become extremely popular amongst retired individuals due to their myriad of benefits. The most notable benefit of these form of lifetime mortgage is that you do not have to move out of your home to get equity from your property & you have no monthly mortgage payments to make. Similar to any other financial scheme, it is important to consider your needs and requirements before you arrive at a decision.

Mentioned below are some important factors that you need to understand before selecting an equity release scheme.

 

No negative equity guarantee

Most equity release schemes have a no negative equity guarantee provided free of charge & automatically incorporated into any SHIP equity release plan. A no negative equity guarantee will ensure that your outstanding debt will never exceed the overall value of your property. At the same time, any outstanding debt will not be transferred to your family after you pass away. Therefore, your beneficiaries can be safe in the knowledage that by you taking equity now, will not make you pay for it later.

 

Moving to a new property

It should be noted that moving to a new property is permitted by the equity release provider you choose to go with. However, as long as the property you are moving to is of standard construction & if leasehold has a lease still in excess of 75 years then it should still be possible to transfer your scheme. Because of this reason, it is recommended to look for a reutable equity release scheme that caters to your specific needs. Again, all equity release schemes that are members of SHIP (Safe Home Income Plans) must have this facility to transfer the mortgage built within the terms.

If you are looking to downsize, then a repayment maybe required to bring the amount riased in line with the equity release providers loan to value. This amount would usually come from the equity that has been raised by downsizing so there would be no need for alarm. Additionally, as you are making some form of repayment, then NO early repayment charge would be applied by the lifetime mortgage provider.

 

Criteria

It should be noted that you will need to meet the equity release companies criteria to become eligible for equity release schemes. For starters, you need to be at least 55 years of age & own your own home. At the same time, the market value of your home should be at least £60,000, although some equity lenders do impose higher valuations so check beforehand. Ensuring you meet these criterion’s will help if you are planning to opt for one of best equity release plans.
However, help is always on hand. Therefore to establish whether equity release is the correct path for you to follow then speak to the specialists at Equity Release Supermarket. Call freephone 0800 678 5159 or email mark@equityreleasesupermarket.co.uk

 

 
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