Equity Release has been around now for quite a few years. In its early years the loan to values were quite low and interest rates were very high compared to today’s low fixed rates. The policies were also very inflexible.
If you currently have an existing Equity Release Plan then we urge you to review the plan to ensure it is doing what you intended it to do. Typically interest rates used to range between 7.49% to 8.79%. Some index linked plans were higher still. As the rates on these plans are fixed at a higher rate you will repay a large amount of equity from your home.
Remortgage equity release to a lower a fixed rate may save you or your beneficiaries a large amount of interest which will be added under your current arrangement. The other main benefit of reducing the interest rate on your loan is by slowing down the interest roll up, you may be able to benefit from a further release from your property in the future as you will owe less under your current plan.
The loan to values under certain old plans were also a lot lower than under current plans. This means that although your loan is increasing as your age has, also you may be able to remortgage equity release and borrow further funds at the same time. The benefit is sometimes the new larger loan at the lower interest rate means you can borrow further funds but in the future you will owe the same or in some cases a lower amount. Thus this can equate to free money in time as you are paying back less than had been agreed under your existing loan at the higher interest rate.
Policies today in comparison are much more flexible. They allow you to be able to borrow the funds you require in a flexible approach under a ‘draw down scheme’. Some Lenders will also allow partial repayment or even monthly repayments if required. You may wish at this stage to remortgage equity release for a lower rate but have no need for further funds, under draw down plans a further amount agreed on completion can be made available to borrow at any time in the future.
If you have some money in the bank either from your original release or from an unexpected inheritance, then it may be best served making a full or partial repayment. Money left as deposits in the current economical climate can fetch a very low rate of interest in comparison to the high interest rate added under your old plan. Some Equity Release Plans allow partial repayments, however the majority don’t. This can be a perfect example of the right time to review your plan. Remortgaging your Equity Release Plan to a lower rate and reducing the amount you owe by repaying part of the loan will reduce the loan repayment for you or your beneficiaries, you will generally not lose control of the money as you can have a draw down thus enabling you to have access to borrowing the money back in the future when you require.
Your circumstances may now have changed and you can now afford to make monthly repayments on your loan which you could not before. By making repayments on the loan you can stop or at least slow the growth of the repayment in the future.
In summary, there are a number of benefits to reviewing your loan, reducing the interest rates, making your plan more flexible, borrowing further funds, partial repayment or monthly repayments. One of our Specialised Advisors will be happy to review your existing arrangements for free, and make some recommendations to you to show you how your current situation can be improved.