Equity Release - The Choices and the Costs Involved

Entering into equity release has long term implications for both you and your beneficiaries and you should not proceed lightly with any form of releasing cash from the equity in your home, or without taking independent financial and legal professional advice. You should also consider the other alternatives, such as downsizing, sale and rent and help from your family. If you fail to do so and make a mistake it will be difficult and expensive, if not impossible, to rectify it and there are often better solutions available.

As with any other form of mortgage, there are some other costs you may have to pay if you choose an equity release scheme. These could include completion, arrangement or application fees, which often are between £300 and £600 and cover administration costs. Some lenders and reversion companies refund these fees when the loan has been set up. You should ask your lender or reversion company about any costs you may have to pay later if you want to increase the size of your loan in the future.

For a lifetime mortgage the lender will need to value your property to make sure that it provides good security for the loan. For a reversion scheme, the company will need to value your property to see how much they are willing to pay you for the percentage of your home you sell to them. The valuation fee will depend on how much your home is worth, with higher charges for more expensive properties. For a £100,000 property, the fee is likely to be between £200 and £300. Some companies may refund this when the loan is completed.

Solicitors' fees are usually between £300 and £600 and cover the legal work carried out on your mortgage. You should ask your solicitor for a breakdown of the fees. You may have to appoint your own solicitor, rather than using the same one as the lender. You will have to pay your own and the lender’s legal costs.

You will need to take out buildings insurance for the period that the plan is in place. This will usually cost between £200 and £300 a year.

Early repayment penalties may be payable to cover the costs involved in setting up a lifetime mortgage if you repay it early. A lifetime mortgage usually continues until you die so you may have to pay an early-repayment charge if you want to pay it off for any other reason. The amount can vary from £300 to many thousands of pounds.

You may have to pay a fee to the person who arranges your equity release scheme. The FSA's rules say that all lenders and mortgage intermediaries who lend, advise on, or arrange lifetime mortgages must be authorised by them. If you are using the services of a mortgage intermediary who charges a fee, the charge must be clearly explained to you. Not all mortgage intermediaries charge a fee but those who do usually charge between 0.5% and 1.5% of the amount you are borrowing. Our optional fees are clearly explained in our Keyfacts document, available from our Site Map.

The Mortgage Shop is a retired IFA that no longer gives direct advice on or arranges Equity Release. Instead, it passes your enquiry to a fully qualified and licensed professional firm in your local area that will do this for you. This is a FREE referral; service to you, without any obligation, and you are completely at liberty to negotiate with the firm concerned the terms for their advice and services. The information provided is on the basis of our understanding of UK tax law and Inland Revenue practice and is subject to change. This site is intended for persons aged 18 or over, resident or ordinarily resident, in the United Kingdom. email: bobstark@mortgagefor.me.uk

This is about Equity Release Plans. To understand the features and risks, ask for a personalised illustration. The actual APR rate available will depend upon your circumstances.