You need to know certain things before you take out an equity release plan because there are things such as a reduced inheritance that you need to be aware of. That being said, you can still have a good equity release plan and leave behind a more generous legacy for your children. You just need to know-how.
Well, What’s Equity Release?
Equity release refers to your property’s items/parts that let you access your money tied up in your house. However, you can only gain access once you’re 55 years or older. You can get the capital value of objects in your home as a lump sum or an income based on the house’s value. You’ll just need to repay that money you accessed at a later stage. There are two kinds:
- Lifetime Mortgage
The first type of equity release is a lifetime mortgage1. This type lets you take out a mortgage on your home if it’s your primary residence. However, you will remain the owner. You’ll have the option to ringfence part of your property for your family to inherit.
You can also make repayments or let the interest increase. Better yet, if there’s any loan amount or any accrued interest, it’ll be paid back when you pass away or need long-term medical care.
- Home Reversion
The second type is a home reversion2, which means you sell some of your property or your whole property. You can sell it to someone like a home reversion provider, and they’ll pay you a lump sum for it, but they can also pay you in regular payments. It’s your choice.
What’s an Equity Release Plan?
An equity release plan offers homeowners who are of retirement age (55 years and older in the UK) a chance to let go of some of the money tied up to their property. In this way, there’s no need for a retired person to seek a new home after retirement.
The number of funds that a homeowner can release is determined based on the value of the home. (Before taking out a plan, a professional will be sent to your home to evaluate it.) There are so many different plans out there, each tailored according to other specifications and providers. You’ll need to look at all of them to see which one works best for you.
When to Switch Your Equity Release Lifetime Plan?
In recent years, many more features have been added to equity release plans; including downsizing protection. So, you can switch to a provider that offers this feature if your current provider doesn’t.
If your initial or current equity release plan doesn’t come with other necessary features, it could also be time to make a move and reap the full benefits of the innovative features. In the end, you need to get what you deserve.
Let me tell you something…
You need to read up on all the new services included in current equity release plans. If you know more than you did in the past, you can add Drawdown Equity Release into your plan with the right provider.
Many of the older equity release plans didn’t allow plan holders to borrow additional funds to remortgage the equity release plans that they already had. For homeowners looking to do the switch to borrow extra cash – a change in your equity release plan may surely be all the more desirable. Providers are now allowing additional funds to be remortgaged, which can be in your advantage.
Follow these easy steps to switch plans:
Assess Your Current Equity Release Plan
Check the current interest rate of your equity release plan. If you’re satisfied, then there’s no need to switch. If you’re unsatisfied, read on.
Take a look at this scenario:
Have you found that other companies are offering equity release plans at a much more competitive rate?
So, the interest rate that you’ve become accustomed to from 5 years ago may now be too high in comparison to the average interest rate of many other plans. Switching your equity release plan may be your means of saving money in the long run. More significant savings means more possibilities!
Calculate Your Way Towards A Better Plan
So, how can you ascertain if it’s indeed time to change your lifetime mortgage?
Well, you can use a variety of online equity release calculators to show you what interest you’ll be paying. Again, remember that the calculator will give an estimated interest amount, and this may differ slightly from the total amount you will have to pay.
Best of all:
You can also rope in a financial adviser who will provide reliable advice on whether the switch is a good idea or not.
You can calculate your equity release plan vs the different equity release plans using the free online mediums. Even though the online equity release plan calculators provide accurate information, you will still severely benefit from seeking professional advice and more information on newer equity release plans.
Think about it, what could a change in plan mean for you? Here are some benefits.
4 Benefits of Switching to an Alternative Equity Release Plan
Good news is there are many benefits.
Making the switch can indeed have several benefits for you, such as:
- Better Benefits
As mentioned earlier, many current plans come with several added benefits that weren’t available on more dated equity release plans. In this way, you can change your plan to hop onto the added benefits bandwagon. Let’s face it; you will surely appreciate the added benefits in the long run. Free home valuations are one perk of switching to a new equity release plan.
- Time to Top Up
If you feel like you need to top your plan, just hang on a minute. The top-up rate will surely be a competitive offering, but your initial equity plan can still include a comparatively high interest rate. Knowing that other options are available before you release more finances, is also an excellent help for peace of mind when you’re deciding. All you need is some research. You will also benefit from professional advice. An expert’s advice will help you to top up or not.
- Move with your Plan
When settling into a new home, most equity release plans allow you to move with your equity release plan. Despite this, knowing that you can move while having the best possible equity release plan is the cherry on top. So, make a move, but only once you’re sure that you’re moving to the best possible program.
- More Money
The most prominent reason why you would move lock, stock, and barrel to another plan is that a new equity release plan will give you the ability to save more money. Aside from gaining many free offers from a more modern equity release plan, you can also save considerably on the amount of money in the process and lose much less on your house’s value.
Aside from the abovementioned benefits, you can also save a lot of money during your retirement period. You may enjoy the advantage of a low interest rate and have the use of tax-free cash coming in.
In case you might be asking yourself, “Is this a genius move?” It means you have not yet given in to the idea of changing something that you enjoy.
There’s nothing wrong with that!
A change in equity share release is a massive change! You’re justified for hesitating. However, you aren’t alone. You can always ask for help when making such a big decision. A helping hand can come in the form of a professional equity release adviser.
You can rest assured that this professional adviser will research multiple options before finding the most desirable option for you. Roping in a financial advisor always helps as it saves you time and effort.
Let’s take a look at some of the best companies in the UK:
Top 10 Equity Release Brands
1. Age Partnership
7. Canada Life
8. Club Crown
9. Daily Mail
10. Equity Release Club
And many others. All these brands offer lending services or equity release related services. But let’s look into equity release companies specifically.
Top 7 Lifetime Mortgage Providers
As you might know, lifetime mortgages are the most sought-after equity release plans. Big brands who offer insurance and pension plans also provide equity release schemes. Here’s a list of our top favourites in the UK:
In the UK, Aviva is kind of a household name. They’re known mainly for their pension plans and insurance products. To add to that, they’re one of the oldest providers. If you’re considering them, it’s good to know that their equity release products are award-winning as over 200 000 people would agree. Since 1998, Aviva has helped people release a total of £7 billion1.
Aviva’s primary services include:
- Inheritance guarantee services
- Voluntary partial repayments
- Enhanced borrowing if you have certain medical conditions
- Downsizing protection services
- Relaxed lending services
Aviva has a lot to offer, and they’ll be an excellent choice.
- Hodge Lifetime
In 1965, Hodge Lifetime created its first equity release plan, making them the longest established provider in the UK. Julian Hodge Bank Limited is the product provider. As one of the oldest providers, they’ve built up an excellent equity release market. They’ve created a superb retirement mortgage range to go with the traditional lifetime mortgage plans.
Hodge Lifetime provides an interest-only mortgage plan requiring monthly interest payment. The rest of the loan must be paid back when you pass away or need long term medical care.
You can apply for this plan from the young age of 55. You can borrow up to 70% of your property value, which is excellent if you need that money.
- Just Retirement
Extremely popular in the post-retirement marketplace, they are excellent in giving retirement income in the form of annuities. They’ve also started lending cash through equity release plans or schemes.
Let me tell you:
Just Retirement also has its equity release model, which has proved to be one of their strengths. Not only do they lend money, but they also fund other company’s equity release plans. Their equity release plans include a wide range of traditional lifetime mortgages; drawdown lifetime mortgages, interest-only lifetime mortgages, lump-sum equity plans, and enhanced equity release plans.
Best of all…
Just Retirement’s experience with medical underwriting has allowed very ill people to get an increase in maximum equity release lump sum3.
LV, or Liverpool Victoria, is known as a mutual society and was created in 1843. They work primarily for working-class people. They offer a range of equity release plans such as drawdown lifetime mortgages and lump-sum schemes. You can get equity release on your primary residence, your secondary residence and your holiday home.
They’re offering structured lifetime mortgage schemes, and they have outstanding guarantees that most other providers don’t provide. They’re suitable for secure repayments or if you want to access future drawdown money4.
5. Legal & General
They’re also a household name and joined the lifetime mortgage field in 20155. They have two options for lifetime mortgage: L&G Income Lifetime Mortgage and L&G Flexible Lifetime Mortgages.
Let’s take a look.
- L&G Flexible Lifetime Mortgages
You get colour-coded to indicate the amount of money you can borrow according to your property’s value (LTV). For example, “Flexible Pink.” Furthermore, the amount of interest you’ll pay will depend on the LTV.
All these are drawdown plans that L&G offer. With these, you’ll be able to borrow a minimum amount of £10,000. The “Flexible” mortgages range allows voluntary repayments which give you up to 10% of what you borrowed annually, but you won’t be penalised.
- L&G Income Lifetime Mortgage
There are also colour-coded. The same rule applies where you’ll pay more interest when the LTV is high. These plans give you a fixed monthly salary for 10-25 years. This income can start from £200 upward.
Best of all:
Legal & General offers inheritance protection as an option to add to their plan, which is never a bad idea for your heirs.
Started in 2008, More2Life has become a favourite. They’re a leading expert in lifetime mortgages. However, you can only get a plan through unique brokers to select, for example, Equity Release Supermarket.
Now, they have four options:
- More2Life Flexi Choice Plans
These are funded by a life insurer that’s leading in the UK. There are different types of choice plan. They also have differing loan sizes as well as the interest rate and min-max amounts. It’s very flexible and customisable to meet your specific needs.
- More2Life Tailored Choice Plans
If you’re suffering from qualifying medical conditions, this one’s for you because you’ll be able to borrow more.
- More2Life Maximum Choice Plans
If you’re looking to get the most money possible, this is the plan for you. You can take the money out lump-sumly or as a drawdown.
- More2Life Capital Choice Plans
There are a few versions of this option. For example, taking a small loan will equal less interest. You’re allowed to make repayments of 10% annually, and you don’t have to pay early repayment charges either6.
Let me tell you:
Any of these plans are very flexible, so you’ll be able to get the right one for your specific financial needs.
Formed in 2015 when Engage Mutual and Family Investments merged, this provider is one of the largest in the UK. They offer variable and fixed lifetime mortgages.
- OneFamily Variable Lifetime Mortgages
You’ll be offered a variable interest rate on your plan according to the CPI, or the Consumer Price Index. It also comes with a cap and collar to safeguard you against future increased rates. They meet the guideline of the Equity Release Council.
- OneFamily Fixed Lifetime Mortgages7
Fixed-term and lifetime interest rates are also an option. You’ll get flexible features and choices which you can discuss with them. You can pick an interest-only payment or a voluntary payment, and even an interest roll-up option exists where no repayments are needed to be made!
- Pure Retirement
Last but not least, a company that has been around since 2014. They’re known as a specialist lifetime mortgage company provider. They offer two ranges of lifetime mortgages: Pure Max Drawdown and Pure Sovereign.
- Pure Max Drawdown
This range is for people who want to borrow as much money as possible. It gives you higher LTV’s and a drawdown capability. This means that you can borrow money now and later in your life from your reserve amount. Within this range are a few options for you to choose from.
You can mix and match fees like legal, arrangement and valuation fees for a fee-free process.
- Pure Sovereign
This range works similarly to the Max Drawdown options. However, the only difference is the interest rate. With the Pure Sovereign range, the interest rate is lower since the LTV is less.
There are so many notable companies, providers and plan options to switch to. You won’t regret it!
Requirements When Changing Equity Release Plans
The professional equity release advisor will state that no switch (even in equity release schemes) can be without deliberations. Therefore, you need to consider the following additional charges:
- Valuation Charges
You’ll pay a fee immediately after your property is valued. Factor this cost into your considerations.
- New Charges
Naturally, switching your equity release plan could cause you to incur more charges than you had initially anticipated. You must keep this at the back of your mind at all times.
- Added Interest
Even while you’re in the process of making the plan switch, you’ll need to pay the interest rate of your existing plan. Take this added interest payment into consideration before all else. A professional financial adviser will assist you to consider all the extra costs.
- Early Repayment Charges
Past equity release plans have a clause that required you to pay back any money much earlier. Recent equity share release plans exclude this clause. It’s excellent to look at the details within equity release plans and study each clause carefully with a financial adviser’s help. Many more unique equity release plans don’t require early repayment charges, making it a highly feasible option.
- Equity Release Council Standards
You must get an equity release plan that meets equity release council standards. You’ll have so much to think about initially, and it may require you or your equity release advisor to account for the added charges you will incur. However, once all is done and dusted, you’ll your finances increase.
Shattering Equity Release Myths
Share Magazine UK mentioned, “The interest rates on lifetime mortgages are significantly higher than standard mortgages-typically around 5.5%.” Although this may have been true in 2018, 2020 has shown a significant decrease in lifetime mortgage rates.
Look at this:
On the other hand, you may still be an equity release shareholder who pays far too much interest. It’s never too late to do a simple calculation online to see if you’re gaining the best possible interest rate or not.
Don’t let the value of your home disappear. You can have a comfortable retirement with a lifetime mortgage or a home reversion plan and still pay the least amount of interest. You know why you want to change your equity release plan, and only you have the power to make the change.
Yes, you can. If you have an equity release mortgage, you can change to another plan or provider, the same applies to a remortgage in the traditional home loan market. Equity release has become very popular with people over 55 who want to enhance their retirement. They do this by releasing tax-free cash from their properties – equity release.
In return for selling your property to an equity release provider, you’ll get a cash lump sum or regular income payments. You’ll generally receive roughly 20% – 60% of the property’s market value (or the part you’ve sold). When you’re considering a home reversion scheme, you should look at whether or not you can release equity as a lump sum or as several.
Yes, you can. If you’ve taken out a drawdown lifetime mortgage plan, then you can take a lump sum at the start of the project and release more money later on as you need it and whenever you need it.
The FCA regulates equity release providers. So, you’re protected by the FSCS if your provider isn’t trading anymore. Equity release schemes or plans that meet the ERC’s standards give you even more protection; including the right to live in your house until you pass away. If the provider gets liquidated, the plan will keep going according to its original terms and conditions.
It’s possible to switch from one equity release plan to another. You just need to find out everything there is to know before you do so so that you’re 100% sure it’s the best choice for your future. Luckily, the FCS and the ERC is on your side, protecting you from anything that can go wrong, which isn’t your fault.