Exactly How Much Does Equity Release Cost?
Just as a regular mortgage has costs related to initiation and maintenance, so does equity release. If you’re considering all your available options, you’ll need to know the price of equity release to be able to weigh your options efficiently.
Now, you might be wondering:
What Is Equity Release?
Equity release is a way for you to access hidden value in your home (if you’re a homeowner that’s 55 years or older). How? Equity release works by unlocking tax-free funds from your home.
If you’re thinking about equity release, there are specific requirements that you must meet to qualify. It’s worth speaking to an expert equity release adviser. They’ll provide you with great advice and help you find the equity release plan that will meet your needs.
That’s not all…
In addition to expert equity release advice, you’ll also need to know more or less what the fees for equity release will be. You’ll feel much more relaxed if you know what it’ll cost you and it’ll be easier to move forward with your application.
But let me tell you something:
A lifetime mortgage may affect your entitlement to certain government benefits. To avoid an unexpected scenario always speak to your financial adviser about this prior to concluding an agreement with a provider.
What Are the Equity Release Set-Up Costs?
Wondering what equity release costs you’ll have to pay? If you’ve ever taken out a mortgage on your home, it’ll be similar to those costs. However, there may be a few extra fees you’ll need to pay. You’ll be paying for advice and application services, which are a requirement.
But let me tell you:
The initial costs you need to pay to access your equity is dependent on your provider and the product/plan you choose.
Let’s pose the question again: “What are the fees involved in taking out an equity release plan?” The answer depends on your financial adviser, lender, and solicitor.
Let’s look at each of these individually.
What Fees Will You Pay?
We’ll guide you through all the services you’ll need. But don’t stress. These are very similar to your mortgage (which you’re very likely to have already encountered).
You’ll need to budget for these three services when you’re calculating your expected equity release costs:
1. Surveyor’s Valuation or Property Valuation Fees
Depending on your plan, you’ll be required to pay for a survey of your property. It’s one of the mandatory costs of equity release. This happens even before you take out equity release.
What does this mean for you?
The surveyor will come and look at your property to determine its value. The surveyor will send your valuation report to your lender. It’s then your choice if you want to go with that specific valuation or not.
It’s always beneficial to get your property valued by an independent RICS-registered (Royal Institution of Chartered Surveyors) surveyor, or any other trusted surveyor. That way, you can be confident that you’ll secure your property’s full market value and not a lower value.
If you’re satisfied with your property’s valuation, you can start focusing on the next steps: considering your age, health, and lifestyle. After considering these, you’ll be in the position to choose the right offer. It’s all up to you.
So, what’s next?
Well, as with any other mortgage, your lender will require an independent survey and property valuation. Why?
- Firstly, so that you can receive the current market value for your property (based on the recent sale prices of similar properties.) That way, your lender can calculate how much you’re eligible to borrow.
- Secondly, to make sure that your property is in excellent condition. If it isn’t well looked after, the lender may not accept the offer. They can also insist that you repair your property.
These valuation fees may be dependent on the estimated value of your property. Some lenders do a free valuation nowadays.
2. Solicitors’ Fees
The Equity Release Council (ERC) has specific rules for taking out an equity release plan. Their rules state that your solicitor needs to be independent of the lender’s solicitor. You also need to have a minimum of one face-to-face meeting with that solicitor.
You might be wondering what then?
Well, if you’re satisfied with the offer and you choose to go ahead with it, you have to instruct a solicitor. It’s best if you select an independent equity release solicitor. They’ll take care of all the legal work for you, and they ensure that everything goes smoothly until your funds are released.
Best of all…
You’re free to choose your solicitor. However, it’s always better to have your case handled by a solicitor with experience in equity release transactions. Usually, you’ll pay roughly £1,250, depending on their fees. Remember to include this cost in your equity release set-up costs.
Some solicitors also offer home visits to meet with you, or may ask you to make your way to any of their local offices, (e.g. central London), whichever is best for you.
3. Lender’s Application Fees
Once again, similar to a regular mortgage, you might need to pay an “application” or “admin” fee to the lender.
These fees generally cover legal costs and set-up costs. Depending on the lender and your chosen plan, the prices usually range between £0 to £695. Remember, by adding it to your loan, it will accumulate compound interest and increase the cost of your equity release over time.
But wait, there’s more!
Luckily, with so much competition among equity release providers, there are many special offers where you won’t be charged any application fees or cheaper admin fees.
What’s the Total Cost?
The estimated total cost is roughly £1,850. However, each application will be different. For example, some plans don’t require you to pay a lender’s application fee or a survey fee. It’s vital to speak to an expert equity release adviser so that you know beforehand what you’ll be paying.
When Should You Pay Your Equity Release Fees?
There are specific fees that you may be expected to pay.
Let’s have a look at them:
Surveyor’s Valuation Fees
If it’s required, then it should be paid with your application, for the most part.
This is usually payable when you receive your tax-free funds.
Lender’s Application Fees
If this applies to you, this should be paid as your plan starts, and as you get your tax-free funds.
Financial Advice Fees
You need financial advice. However, there are varying costs, depending on your provider. Some charge a fee based on a percentage of the amount you’re borrowing.
Some Extra Tips
Before taking out an equity release plan, you should seek advice from an equity release expert as required by regulations. Your application can’t and won’t be accepted without it.
What Interest Rate Will I Pay for my Equity Release?
We’ve covered the usual costs of equity release. Be aware of how much interest you’ll have to pay on a lifetime mortgage, which is the equity release plan most people choose. Annual interest rates can be as little as 2.37% fixed for life, depending on your provider.
Do I Need to Pay Tax on Equity Release?
As we’ve mentioned before, equity release is releasing tax-free cash from your property. It’s classified as a loan, not a type of income. So, no matter which product you choose, it’s tax-free. So, you won’t have to add that to your total costs.
What does this mean for you?
Depending on how you work with the released funds and how you invest it, you may be charged some tax. But releasing your funds alone won’t require you to pay tax.
If you gift the equity release funds to someone in your family you might have to pay inheritance tax. Therefore, consider and discuss other tax implications with your financial adviser before you do anything with your equity release funds.
Essential Things You Should Consider
Your expert equity release adviser should explain these things to you:
- Getting advice before you release tax-free cash from your property – read everything there is to know before you make a decision. I.e. Make sure it’s right for you.
- Lifetime mortgages are loans secured against your property. Your estate value will be less, and it may affect your property entitlement to certain means-tested benefits.
- Equity Release Council standards need to be met. Make sure you’ll get the required protections such as the no negative equity guarantee, meaning you’ll never owe more than what your home is valued at.
- Consider all the costs involved before deciding on an equity release plan.
What Are the Costs When I Choose A Lifetime Mortgage Specifically?
There are individual initial costs when taking out a lifetime mortgage.
Let’s look at three lifetime mortgage elements you’ll need to pay for:
1. Arrangement Fees
Also called an application fee. Some providers charge £599, and others charge nothing at all. There’s also a transfer fee of £30 to transfer your funds to your solicitor at the end. You won’t pay these until the very end.
2. Solicitors’ Fees
If you’re satisfied with the lifetime mortgage offer and want to accept it, you’ll need to instruct your own equity release expert solicitor. They’ll act on your behalf. Equity release solicitor charges are around £650 but may vary. Compare a few quotes before making your decision.
3. Lifetime Mortgage Interest Rates
The interest rates are fixed on lifetime mortgages1 so that they won’t change as time goes on. Any interest you haven’t paid is added to your loan every month. Interest is charged on your loan, and any interest that has already been added will incur further interest (compound interest or roll-up interest).
But, there’s nothing to worry about.
You won’t have to pay this interest until you pass away or until you enter long-term care. However, if you choose to go with an independent adviser, costs may be differ.
If you’re considering equity release2 and want to see how much money you could release, take a look at our lifetime mortgage calculator now!
Feel free to contact us regarding any other questions you might have. You can also consider our guide to the the pros and cons of equity release for more knowledge on the subject.
Finally, you could borrow money using other methods which might be cheaper. So make sure you know everything before you choose equity release as a means of accessing money.
Generally, initial costs will apply, and then interest will be charged as well. Interest rates are extremely low at the moment: 2.25%! So it’s a great time to consider equity release. Some providers don’t even charge an admin fee anymore, due to the popularity increase and competition among providers/lenders.
You’ll receive a cash lump sum, or you can opt to receive a regular income from your released funds. The catch is you’ll need to repay that money when you die or need into long term medical care. Plus all the additional costs that they don’t always tell you about. So, make sure you’re in the know before taking out a plan.
It could be a good idea because it’s tax-free cash from your home, without worrying about monthly repayments. It could be bad if you don’t want your heirs to have a different inheritance than they would’ve if you didn’t take money from your property through equity release.
However, it all comes down to your specific financial situation and what you can afford. Some people find that equity release plus all the costs are more cost-effective than other alternatives. Speak to a financial adviser to find out if it’s a bad idea for you or not.
Here are the top 5 equity release providers:
- LV with their low repayment charges.
- Just with their simplicity.
- Legal & General if you want a big loan.
- Aviva if you’re elderly.
You must factor in equity release costs if you’re considering equity release as a means of borrowing money. It’s also relatively easy to figure out if this is for you with our equity release calculator.
Always ask an expert for advice and don’t forget to do your research, so you end up with the best provider.
Equity release doesn’t have to be complicated!