Could You Save Money by Switching Equity Release Plans?

Why Consider Switching Your Equity Release Plan?

A lifetime mortgage is designed to last for life, but that doesn’t mean you have to stay with the same plan or provider forever. Over the years, equity release interest rates have changed, and many homeowners now find that their existing deal is no longer competitive.

By switching, you could:

• Secure a lower interest rate
• Potentially save thousands over time, leaving more to your loved ones
• Unlock more tax-free cash from your home
• Access new plan features that weren’t available when you first took out your plan.

Could You Qualify for an Enhanced Lifetime Mortgage?

As part of the equity release switching service, your adviser will check if you qualify for an enhanced lifetime mortgage. If you have a medical condition or a history of smoking, you may be eligible for lower rates or even access more money.

How Does Equity Release Switching Work?

Switching an equity release plan is similar to changing your car insurance or energy provider—you’re simply ensuring you have the best deal. However, it’s essential to do this with professional advice.

Your adviser will:

1. Review your current plan and compare it with today’s market.
2. Search for lower interest rates that could save you money.
3. Check if you qualify for an enhanced plan, which may allow you to release more cash.
4. Assess your property value, as any increase could mean you’re eligible for a higher loan amount.
5. Explain new plan features, such as inheritance protection or interest payment options.

If your home has increased in value since you took out your plan, or if your age or health has changed, you may be able to access more money.

How Much Could You Save by Switching?

The savings depend on factors like your current interest rate and the amount borrowed.

Here’s an example of potential savings by switching to a lower rate:

If you took out a lifetime mortgage in July 2019, borrowing £113,237 at an interest rate of 4.91%, your total repayment after five years would amount to £144,673.88.

However, if you had taken out the same loan in July 2021 at a lower interest rate of 4.26%, your repayment after five years would be £140,064.89.

This difference in interest rates could have resulted in a potential saving of £4,608.99 over five years.

This data is from the Equity Release Council’s H1 2021 report, showing how a lower interest rate could reduce total repayments by over £21,000 over 15 years.

If you took out your plan when interest rates were higher, switching could save you a significant amount over time.

Am I Eligible to Switch Equity Release Plans?

If you’ve had your lifetime mortgage for at least one year, you may be able to switch to a better deal. Whether it makes sense to do so depends on:

• Your current interest rate
• The size of your loan
• Your home’s value today
• Any changes in your age or health

Your adviser will assess whether switching is beneficial based on your unique situation.

How Have Equity Release Rates Changed?

Over the past few years, equity release rates have fluctuated significantly.

• January 2022: The Equity Release Council reported an average rate of 4.10%
• August 2022: Rates rose to 5.74%
• October 2022: Moneyfacts reported the average rate had jumped to 7.54%

The good news? Most lump sum lifetime mortgages have fixed rates, meaning once you secure a rate, it won’t increase even if market rates rise. However, this also means you won’t benefit if rates fall.

FAQs

How Much More Money Could I Unlock?

This depends on your circumstances, but there are a few key reasons why you may be able to release more:

• You’re older than when you first took out your plan, which could increase the amount you can borrow.
• If you’ve developed a medical condition, you may qualify for an enhanced lifetime mortgage, which could allow you to unlock even more money.
• If your home has increased in value, you may be able to borrow against a higher property valuation.

An adviser can check if you qualify and find the best available deal.

What Costs Are Involved in Switching Equity Release Plans?

Your initial advice should be free and without obligation. You’ll only pay a fee if you choose to proceed and your case is completed. Other costs may include:

• Lender’s valuation and arrangement fees
• Completion fees (can be paid upfront or added to the loan)
• Legal and solicitor fees
• Early repayment charges (if applicable on your current plan)

Your adviser will give you a full breakdown of costs before you decide to switch.

Can I Switch My Equity Release Plan to a New Home?

If you’re moving house, you may be able to port (transfer) your existing plan to your new property or take out a new plan. Some lenders allow you to move your lifetime mortgage, but it’s always worth reviewing your options to ensure you have the best deal available.

What Are the Potential Risks of Switching Lifetime Mortgage Plans?

Switching can be beneficial, but it’s important to consider these factors:

• Interest is rolled up—the amount you owe increases over time. Some plans allow optional interest payments to manage this.
• Inheritance may be affected—while some plans allow you to protect a percentage of your home’s value for loved ones, equity release still reduces the amount you leave behind.
• Gifting money from equity release may have tax implications—your adviser will explain any potential inheritance tax issues.
• Early repayment charges—some lenders charge a fee if you repay all or part of the loan early.
• Impact on benefits—if you receive means-tested state benefits, borrowing money via equity release could affect your eligibility.

Your adviser will go through all the pros and cons to ensure you make the right decision.