How To Reduce The Cost Of Equity Release | moneyfacts.co.uk

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Derin Clark

Derin Clark

Online Reporter
Published: 30/07/2021

The latest figures released by the Equity Release Council reveal that between April and June 20,352 new and returning customers borrowed via equity release, resulting in equity release activity returning to its pre-pandemic level.

Along with the increase in homeowners looking to take equity release, the market has also become more competitive with rates falling and plans offering more flexibility. While this gives those looking to borrow equity release more opportunities to find the best deal for them, it also helps to reduce the cost of equity release.

While the market has grown and become more flexible in recent years, equity release will have a long-term impact on finances and, as such, those considering equity release should speak to an independent financial advisor first to ensure it is the right option for them.

For those interested in releasing equity from their home via equity release, keeping costs down will help to mitigate the long-term impact it has on finances. Here we look at some ways borrowers can reduce the cost of equity release.

Reducing the cost of equity release

A key way of reducing the cost of equity release is choosing a plan with a low interest rate. Fortunately for borrowers, equity release rates have been falling this year and, as our latest equity release rate round up shows , plans are now offering rates from as low as 2.98% AER.

As well as this, homeowners who took out an equity release plan five years ago will find that rates have fallen significantly during that time. These homeowners may want to consider switching onto a new plan as it could result in lowing the cost of their equity release, however they will need to consider any additional charges or fees they may incur switching plans.

Along with falling rates, many equity release plans now offer more flexibility for borrowers. For example, it is now common for plans to allow homeowners to take drawdown on their equity release, meaning that they can gradually release the money from their home over their lifetime. Interest is only payable on the amount of equity that is actually released, so the borrower only starts to incur interest charges on the money released.

Equity release plans are now often offering borrowers the ability to repay part of the interest each year or make partial repayments on the amount borrowed. For homeowners who are able to make these repayments, choosing a plan with this flexibility helps to reduce the final amount that has to repaid when the property is sold, allowing the homeowner to leave a larger inheritance to their loved ones.

A good way for those considering taking equity release to choose the most cost effective plan is by using an equity release broker. A broker will be able to take into account the homeowner’s individual circumstances and will be able to highlight the plans that offer the lowest rate, charge the lowest fees and include the most relevant flexibility for the borrower.

“Many people who put plans on hold last year are coming back to the market and finding more competitive and flexible deals on offer to help them achieve their financial aims,” explained Simon Gray, managing director at equity release advisory firm HUB Financial Solutions. “But releasing equity is a long-term commitment that should not be taken lightly. An adviser’s role is to make sure they understand each client’s situation and goals so they can tailor plans to best meet that customer’s needs. Equity release does help many thousands of people every month have more satisfying later lives by accessing the money stored in the property, but the focus must be on high quality advice that is prepared to challenge each client’s assumptions in order to come to the best solution.”

Note

The Equity Release Service is provided by HUB Financial Solutions Limited. HUB Financial Solutions Limited. Registered office: Enterprise House, Bancroft Road, Reigate, Surrey RH2 7RP. Registered in England and Wales no. 05125701. HUB Financial Solutions Limited is authorised and regulated by the Financial Conduct Authority. Part of Just Group plc. Moneyfacts.co.uk itself is not authorised by the Financial Conduct Authority for equity release business, so we refer our customers to HUB Financial Solutions’ regulated service.

Any legal or contractual relationship will be with HUB Financial Solutions. There may be a fee for mortgage advice. Your adviser consultation appointment is FREE and carries no obligation. If you choose to proceed with a recommended product, an advice fee of £1,100 would be payable upon completion. Moneyfacts.co.uk will receive a  commission from the lender. HUB Financial Solutions does not offer advice on investments.

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