How much does equity release cost?

Equity release can be a valuable option for homeowners looking to access the wealth tied up in their homes without having to move. Whether you’re considering equity release to make a special purchase, assist with the cost of day to day living in retirement, help family members, or manage unexpected expenses, it’s crucial to understand not just the benefits but also the costs involved. This guide aims to provide you with a clear and honest overview of what to expect when considering equity release, ensuring you can make an informed decision that best fits your needs.

Understanding Equity Release

Before we dive into the costs, let’s briefly define what equity release is. Equity release refers to a range of products that let you access the equity (cash) tied up in your home if you are over the age of 55. You can take the money you release as a tax free lump sum or in smaller amounts as and when needed or as a combination of both.

There are two main types of equity release:

• Lifetime Mortgages: You borrow money secured against your home, retaining ownership. Interest is charged, but neither the loan nor the interest needs to be repaid until you die or move into long-term care.
• Home Reversion: You sell all or part of your home to a home reversion provider in return for a lump sum or regular payments. You can live in the home rent-free until you pass away, but you’re no longer the sole owner.

The Costs Involved in Equity Release

1. Lender Product Fees: Setting up an equity release plan may involve several fees, including lender product fees which usually range from £500 to £995. These fees can usually be added to the loan.
2. Valuation Fees: Your property must be valued to determine how much money you can release. Valuation fees vary and depend on the value of your property, however most lenders do not charge the applicant for the valauation and cover the cost of the valaution fee themselved.
3. Legal Fees: You will need a solicitor to help you understand the legal implications of equity release. Legal fees typically range from £800 to £1500
4. Mortgage Advisor Fees: You will need a qualified mortgage advisor to help you understand all of your options and recommend the most suitable mortgage for your circumstances. Broker Advice fees vary, but typically range from £995 to £2000.
5. Interest Rates: Lifetime mortgage interest rates are usually fixed for the mortgage’s duration and typically compounded, meaning you pay interest on the added interest. As a result, the total amount you owe can quickly increase.The rate will depend on the plan you choose but expect it to be higher than standard mortgage rates.
6. Early Repayment Charges: If you decide to repay your plan early, you may incur a charges for doing so.  These charges can vary widely between providers and plans, so it’s important to understand the terms before proceeding.

Potential Impacts and Considerations

• Impact on Benefits: Releasing equity may affect your eligibility for means-tested benefits such as Pension Credit and Council Tax Support.
• Inheritance: Using an equity release scheme will reduce the value of your estate, meaning there will be less for your heirs to inherit.

Choosing the Right Plan

Selecting the right equity release plan requires careful consideration. It’s advisable to speak with a qualified mortgage advisor who can offer guidance based on your personal circumstances. Additionally, look for plans approved by the Equity Release Council which ensures certain safeguards, like a no-negative-equity guarantee.

Conclusion

Equity release might offer a practical solution for accessing tax free cash in your golden years, but it comes with significant costs and implications. By understanding these and carefully considering your options, you can ensure that the decision to release equity from your home aligns with your long-term financial planning.