Would You Save Money Switching Equity Release | moneyfacts.co.uk

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Derin Clark

Derin Clark

Online Reporter
Published: 21/10/2021

Falling equity release rates mean that some homeowners could save money by switching to a new deal at lower rate, but equity release borrowers need to be careful they are not hit with penalty charges that could cost them more to switch than they would save. Here we look at whether equity release borrowers will be able to switch from their current deal and the potential costs involved.

Can you switch equity release deals?

Equity release, also referred to as a lifetime mortgage, products that are offered by members of the Equity Release Council will normally allow borrowers to repay the loan and switch to a new deal. Borrowers should check the terms and conditions of their deal to ensure they can switch and see if any conditions must be met if they do decide to switch. Borrowers on an older deal, especially those who took out a lifetime mortgage in the early 1990s or before, may find that they are unable to switch, or that it is more difficult, and should speak to a broker who will be able to provide advice and information about the borrower’s options.

How much could you save switching equity release deals?

With the fall in equity release rates over the past few years, a homeowner who took out equity release just five years ago could find that they are able to save money switching to a new deal. For example, if a borrower had taken out equity release 10 years ago in October 2011, the average rate stood at 6.82%. Over just five years this had fallen to 5.21% in October 2016, meanwhile the average rate on an equity release deal this month stands at 4.17%. When considering the impact of interest on a lifetime mortgage, borrowers should remember that interest is compounded.

Here is an example of how much someone could save in interest repayments switching equity release deals. A homeowner who released £100,000 from their property through equity release 10 years ago at the average rate of 6.82% would, after 20 years, owe almost £375,000. Meanwhile if, after 10 years, they switched deals onto the current average rate of 4.17%, they would owe nearly£365,000. This would mean the homeowner would save around £10,000 by switching deals after 10 years, however this does not take into account any charges that may be incurred switching.

What costs are involved when switching equity release deals?

Although significant savings can be made switching equity release deals, some products charge high penalties if the borrower exits the deal early. Again, those with an equity release deal should check the terms and conditions to see if they must pay a penalty to repay the loan and switch. Some that do have a repayment charge will waive the penalty if certain conditions are met, however borrowers who feel that they are unfairly being charged a penalty can make a complaint to the Financial Ombudsman Service if their complaint to the equity release firm is not resolved to their satisfaction.


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