There are many ways to obtain financial security in retirement. Most people depend on pension plans and any savings for income during retirement. People are also increasingly looking at equity release to improve income during retirement. Equity release plans allow you to unlock some of the value built into your property without the need to sell or vacate the house. There are a number of attractive equity release plans available, and even if you already have an existing equity release mortgage, you could swap your this for an alternative one.
Reasons for switching equity release plans
There are many reasons to shop around for alternative equity release scheme and lenders are more than willing to accept such prize business. This is because interest rates have recently been changing, for the better. If you have an existing equity release UK scheme that is locked into old interest rates, you could get a much better deal by switching to a new plan with lower rates.
As with any financial advice, you must always explore your options before jumping at the opportunity. All maybe not as it seems in swapping interest rates around 8%, down to current rates which are currently lower than 6%. The overriding factor in whether one should swap schemes is usually whether early repayment charges exist. If so, the size of these penalties, if in existence could determine if swapping equity release schemes would be worthwhile.
Before considering switching equity release plans the reason need to be established as to why this course of action is being considered. Is it for additional funds, or to save the estate compounded interest be achieving a better interest rate, thus benefitting the inheritance one’s heirs would receive?
Consider your options first
If additional funds are required then first of all, as with any mortgage, it would be worthwhile to see what your existing equity release mortgage can offer. This would save considerably on set up costs & if early repayment charges are applicable then it would avoid these being levied. A qualifies equity release mortgage adviser would look into this first for you.
However, the tendency of equity release providers is to offer a less than competitive interest rates on the further advances taken. This is evidenced by the main lenders such as Aviva which is the largest equity release lender by far. Nevertheless, an overall analysis should be undertaken to establish whether staying or swapping lenders is best.
Potential savings of remortgaging
By comparing different lifetime mortgage plans can help you work out potential savings over the long term. For instance, a new Aviva drawdown flexi plan has a current rate of 5.92%, as opposed to say an older Northern Rock lifetime mortgage scheme of 7.9%. With current incentives offered by Aviva to new customers of a £500 cashback & free valuation, it has been calculated that over a 15 year period this kind of differential in interest rates can save over £13,000.
Another reason why you may consider swapping equity release is because equity release loans have become much more flexible today than just a few years back. For instance, until 6 years ago, the only equity release schemes available were lump sum plans. These were not particularly viable for those who did not want to borrow too much initially, but instead, wanted to borrow in instalments or regular smaller amounts. Hence, today we have the option of drawdown lifetime mortgages that are more suitable & offer more cost savings than previous.
If you have exhausted your current mortgage facility and your lender will not advance any further funds then you could swap your equity release plan for an alternative scheme that offers ‘enhanced’ borrowing levels. There are now equity release schemes that consider the applicant’s health and lifestyle before lending. This would be suitable should people have grave health & therefore wish to take the maximum now before their term expires.
How enhanced equity release schemes can help
For instance, if you have a history of ill health, an ‘enhanced’ or ‘impaired equity release mortgage’ may be available to you which based on a series of health questions can distinguish whether you qualify for a greater lump sum than normal. Some enhanced equity release providers such as more2life, Partnership and Aviva can offer up to 15% higher than regular equity release schemes.
Swapping an existing equity release plan for an alternative one is a matter of careful consideration by an independent equity release expert. There are professional equity release advisers who can help you shop around for new and better products and based on your existing circumstances, including your current plan, the current value of the house, your age and state of health etc and advise you on the best possible alternative to swap your equity release plan.
If you wish to benefit from an equity release remortgage analysis, please call the Equity Release Supermarket team on 0800 678 5159 or email [email protected].