I took out an Equity Release plan for £50,000 about 10 years ago and have used it over the years for a few extras such as holidays and wedding gifts for my grandchildren – it’s just about all spent now. My bungalow has increased significantly in value over that time, so I wonder if I can borrow more. Can you explain how I go about that, please?
Diane Fish of Smith & Pinching responds:
You can almost certainly change your Equity Release plan – in fact, it’s a good idea to review it every few years because rates change and you may find a better deal. However, you must do your research carefully before signing up as there may be early repayment charges to consider if you change provider, for example.
It might be possible to borrow more from your current provider without incurring early repayment charges, but you must balance the benefit of that against the possibility of a new deal with a lower rate.
Equity Release can take two forms: lifetime mortgages and home reversion plans. Lifetime mortgages are much like a standard mortgage in that you borrow a specific sum and interest is incurred until the debt is repaid. Home reversion plans involve selling a share of your home to the provider, with the respective share being paid to the provider when the property is sold.
One lifetime mortgage option you might like to consider is what is known as a drawdown plan. With this type of plan, you agree on a maximum amount with a provider that you can borrow, but only draw what you need when you need it, without having to apply for a new loan each time. You only pay interest on the money you’ve actually used rather than the total amount available to you. The interest rate will vary on the various tranches you take: the prevailing rate is applied by the lender at the time of drawdown.
An independent mortgage and equity release adviser can do the research and investigation for you, to help you work out what would be the best way to borrow more against your home.
Taking out a Lifetime Mortgage will mean that the value of the estate you leave to your family when you die will be reduced. It may also affect your entitlement to any means tested benefits both now and in the future. Equity Release can be more expensive when compared to a normal residential mortgage. In addition, you will still be responsible for maintaining the property.
This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration. There will be a fee for Equity Release/mortgage advice. The precise amount will depend upon your circumstances, but we estimate that it will be a minimum of £1,100. Any opinions expressed in this article do not constitute advice.
For more information, please visit www.smith-pinching.co.uk
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