Making sense of costs and interest rates for Equity Release

Equity Release is designed to access tax-free funds from the equity in your home. Having a clear understanding of the costs and interest rates associated with Equity Release, is a significant part of the decision-making process for homeowners in Windsor. To help you, here is an overview of the things you should know.

Interest rates

The most common Equity Release plans are Lifetime Mortgages. The mortgage attracts interest which accumulates over time. It is usually repaid when your home is sold.

As Equity Release is intended for long-term borrowing, interest rates are generally higher than standard mortgage rates. Some things you should consider are:

• Current Equity Release market rates typically range between 5% and 8%.

• Compared to high street mortgages, Equity Release interest rates are often around 1.5% higher than on standard residential mortgages.

• Most Equity Release products include fixed interest rates for life, to offer more certainty over costs.

• The age of the borrower can impact the rate. They may be slightly higher for borrowers aged 55, than those aged 65+, for example.

How does interest affect the final payment?

Equity release plans compound interest, so the amount owing can increase significantly over time. For example, a £50,000 Equity Release with a 6% interest rate could double in 12 years if no repayments are made.

To manage the cost of interest accumulation, and subject to the terms of the product, homeowners can opt to make voluntary payments. Some borrowers can choose a drawdown option whereby, instead of taking a lump sum payment, money can be withdrawn as needed to reduce compounding interest.

Other costs to be aware of

1. Most lenders charge arrangement or set-up fees, which can range from £500 to £3,000.

2. Property valuations are required by lenders and can incur costs of between £200 and £600.

3. Legal fees - for the cost of drawing up paperwork and providing legal advice -usually range from £1,000 to £2,000.

4. Financial adviser fees typically start at £1,000.

5. It is also important to be aware that some lenders apply early repayment penalties if you wish to discharge the mortgage early. This cost can vary depending on the lender and product.

Is equity release right for you?

Understanding the costs and interest rates of equity release is essential for making an informed decision. If you're considering an Equity Release plan in Windsor, UK, working with a local Equity Release Specialist can help ensure you find the best option for your financial situation.