Is Equity Release always a Lifetime Mortgage?

J Finance Legislative Information

By definition an Equity Release loan is a lifetime mortgage, intended to be repaid when the borrower (or surviving borrower on a joint arrangement) moves into long-term care or passes away. However, just because the arrangement itself is for life, this doesn’t mean the package or provider must remain the same for life. In the current economic climate, with borrowing rates at historic lows and lenders clamouring to offer the most cost-effective package, prospective borrowers have a wide spread of options when it comes to Equity Release.

Recently, we have met with two prospective clients who had previously arranged Equity Release mortgages elsewhere. Having read a lot about low interest rates and the ever-increasingly competitive Equity Release market, they were keen to review their current arrangements.

We met with the clients, one in the comfort of their own home in Whitchurch, the other travelled to our Newbury office with her son, and began to get a picture of their reasons for releasing equity, their future potential needs and whether we might be able to alter their arrangement for the better.

Equity Release will typically involve an initial lump sum being released, sometimes with the option for further future lump sums, and if no payments are made towards the loan, the interest will roll up into the arrangement.

It is therefore important to get an up to date mortgage balance and an idea of property value. Although the property market has seen little growth in recent years and in some areas, values are dropping, both clients had seen property values increase since they initially released funds.

Equity Release plans will usually involve a valuation fee, although sometimes this is covered by the lender themselves. There will also be solicitor costs and an advice fee; so it was important to factor all of this in to our sums. Some Equity Release plans will also have Early Redemption Charges to pay if the loan is paid off or refinanced during an initial set period.

Due to the complex nature of Equity Release these penalties might be fixed or may be reliant on external factors and aren’t always in force for the same length of time. We reviewed the situation with both clients and were happy to report that neither had a charge for repaying their existing loan.

As a result of our research and financial planning, both clients have been able to obtain lower rates. One client has obtained a 1.99% saving and the other 3.04%. In addition, both were able to release a little extra on top of the current balance to help with their current financial situation.

With fees factored in, this refinancing will see them save money from the end of the next year onwards. To put this into perspective, if the loan remains in place for the next 5 years, having refinanced, we estimate that one client will reduce their balance by £14,000, increasing to an estimated £35,000 over 10 years; and the figures are slightly higher for the second client we mention as the loan amount is higher.

J Finance are always happy to discuss Equity Release with existing client or new clients.

Our advisers are appropriately qualified and members of the Equity Release Council, the industry body for the UK Equity Release sector. Further we work with Answers in Retirement, the UKs largest later life lending group to ensure we have access to as many options as possible and that we stay up to date with the latest changes to the sector.

If you would like to discuss equity release or any other financial matters, we will be happy to help. Please contact us without obligation.

Established in Berkshire in 2004, J Finance Ltd is one of the leading financial planning companies in the area. We serve clients across England and Wales. If you would like to discuss this subject or any other financial matter, please contact us on 01635 521 300 or email contact@jfinance.co.uk.

EQUITY RELEASE CAN AFFECT THE FUTURE INHERITANCE OF YOUR BENEFICIARIES, NOT TO MENTION YOUR OWN FINANCES. THEREFORE, IT’S IMPORTANT THAT BEST ADVICE IS SOUGHT DUE TO THE COMPLEXITY AND VARIATIONS BETWEEN ALL EQUITY RELEASE SCHEMES.