How Much Does Equity Release Cost and How It Works

Equity release can be a complex and confusing process, but it's essential to understand the costs involved. The average cost of equity release is between 2-5% of the loan amount, plus interest.

There are two main types of equity release: lifetime mortgages and home reversion plans. Lifetime mortgages allow you to borrow a lump sum or a series of payments, while home reversion plans involve selling a portion of your home to a lender.

The cost of equity release can vary depending on the type of product you choose and the lender you work with. Some lenders may charge higher fees than others, so it's crucial to shop around and compare prices.

To give you a better idea, a typical lifetime mortgage might come with an interest rate of 5.5% per annum, while a home reversion plan might involve selling 25% of your home for £50,000.

Equity Release is a complex financial option, but it's essential to understand the types available. There are two main types of Equity Release: Lifetime Mortgages and Home Reversion Plans.

Less than 1% of Equity Release arranged is via a Home Reversion Plan, making Lifetime Mortgages the more viable option. This is because Home Reversion Plans involve selling part or all of your property, which is rarely necessary.

A Lifetime Mortgage is a loan against the value of your property, with the older you are and the greater the property value, the larger the sum you can borrow. The loan doesn't have to be fully repaid until you die or move into long-term care.

You can take the money from a Lifetime Mortgage as a lump sum or a series of lump sums. The loan amount is paid to you as agreed with your lender, and you can choose to make repayments or allow interest to accumulate.

Home Reversion schemes involve selling part or all of your home to a company in exchange for monthly payments or a lump sum. This type of equity release allows you to continue living in your home without paying rent for the rest of your life.

Choosing a provider is a crucial step in the equity release process. There are four main considerations to take into account, as guided by Laterlivingnow MD and Equity Release specialist, Simon Chalk.

You'll want to choose a provider that's regulated and authorised by the FCA, so you can feel reassured that they're bona fide. Currently, there are nine Lifetime Mortgage lenders who offer their plans through truly independent advisers and are members of the Equity Release Council.

Consider using a comparison tool to find out which product might best suit your needs, or learn more about the range of later life mortgages available.

There are four main considerations to take into account when choosing an Equity Release adviser. You should look for a provider that is truly independent and a member of the Equity Release Council.

Currently, there are nine Lifetime Mortgage lenders who offer their plans through truly independent advisers and are members of the Equity Release Council. They are all regulated and authorised by the FCA, so you can feel reassured that they are bona fide providers.

more2life is part of the 'Key Group' of companies, specialising in providing Lifetime Mortgages. They don't have their own money to lend, instead, they set up deals with third parties to provide funding for their range of five different Lifetime Mortgage plans.

more2life's plans offer flexible options, including larger loans for borrowers with certain medical conditions or lifestyle issues. This can be a great option for those who need a bit more financial flexibility.

Canada Life is a solid choice for those looking for a reliable provider. Founded in 1847, they are the oldest Canadian life assurance company. They have £820bn of assets under management, which speaks to their financial strength.

Their product range includes unique options like Second Home and Buy-to-Let Lifetime Mortgages. They also offer ordinary lump sum and drawdown Lifetime Mortgages on your main home.

Canada Life is known for having flexible and simple to understand plans. Their terms and charges are very clear, which can be a big plus for those who value transparency.

Legal & General is a well-established UK financial services company, founded in 1836.

They've been around for a long time, and their experience shows in their services.

The Legal & General Group is one of the leading lenders in the Equity Release market.

Their Home Finance arm has quickly grown to become a leading player in the industry.

Legal & General offers a competitive and flexible range of Lifetime Mortgages.

Their unique Income Plan is definitely worth considering for those who need a steady income.

Pure Retirement offers four different Lifetime Mortgage Plans funded by external companies. These plans include lump sum and drawdown options, with some featuring unique features like repaying up to 40% of the initial loan without penalty.

They provide a range of products to suit individual needs, including the Prepare To Care plan.

Their business model is similar to more2life, offering flexible options for homeowners.

You won't pay an advice fee for equity release, as the provider covers this cost. This payment is included in the product charges and interest rate you pay.

Arrangement fees can cost between £1,500 and £3,000, according to MoneyHelper, but not all providers charge them. Certain equity release providers charge a product fee, usually a percentage of the total amount released.

You may also have to pay transfer fees, which cover the cost of transferring your money to your solicitor, but not all providers charge for this. Application fees are sometimes charged to cover the cost of setting up your equity release plan, but this can vary.

Adviser fees can also apply, and with Royal London Equity Release Advisers, their fee currently does not exceed £1,690.

Just is a UK financial services company that offers a range of financial products, including Lifetime Mortgages.

Just has a partnership with Legal & General Home Finance Limited, which means they receive a payment from them to cover their advice costs.

This payment is included in the product charges and interest rate you pay if you decide to take out a Just Lifetime Mortgage.

Just has a 'Green Lifetime Mortgage Feature', which rewards borrowers with energy-efficient homes by potentially reducing the interest rate charged on some of their plans.

Equity release fees can be a significant consideration when deciding to release equity from your home. The main types of equity release fees include arrangement, valuation, advice, and legal fees.

Arrangement fees can cost between £1,500 and £3,000, although not all providers charge this fee. Certain providers may charge a product fee, usually a percentage of the total amount released.

Advice fees can vary, but some providers may charge a fee for sourcing an adviser for you, or you may obtain advice independently. In some cases, the provider may pay the adviser a commission on completing your equity release arrangement term.

Application fees, also known as arrangement fees, can be paid when your application is completed and the funds are released. Some lenders may charge this fee to cover the cost of setting up your equity release plan.

Valuation fees cover the cost of valuing your property, and not all providers charge similarly. Transfer fees, on the other hand, cover the cost to the provider of transferring your money to your solicitor.

Some providers, like Royal London Equity Release Advisers, may charge adviser fees, which can range up to £1,690, but only if you choose to proceed with releasing equity from your home. Not all providers charge transfer fees, so it's essential to check with your provider.

It's worth noting that some providers, like Legal & General Home Finance Limited, do not charge an advice fee for equity release. Instead, their advice costs are covered by a payment they receive from the mortgage provider.

Initial costs can be a shock, but they vary widely. An arrangement fee, also known as an application fee, can cost anywhere from £599 to nothing at all.

Solicitors' fees are another cost to consider, typically ranging from £860 to much higher amounts, so it's essential to shop around and compare prices.

The interest rates on lifetime mortgages are fixed, meaning they won't change over time, but you'll need to pay compound interest, also known as roll-up interest.

You'll also need to consider the costs of independent legal advice, which can be calculated as a percentage of the loan, often around 1-2%.

The arrangement fees themselves can range from £500 to £3,000, depending on the lender and the type of product.

Valuation fees will also be necessary, with costs varying depending on the property you own.

Here's a breakdown of the initial costs you can expect to pay:

Keep in mind that these costs may differ if you choose to use an independent adviser.