You can switch your equity release scheme

Interest rates have fallen recently and are expected to come down again in December. It has prompted some retired homeowners who have equity release schemes to consider switching lenders to reduce costs or get even bigger loans.

Equity release schemes enable older homeowners to get at the wealth otherwise tied up in their home, and are particularly appealing to those who are equity-rich but cash-poor. This can happen if a pension has not delivered, or if savings have been eaten into over the years.

Experts in the industry have seen an increase in the number of elderly people using equity release to ease their financial concerns, as many pensioners find that their income is insufficient to feed today’s rising costs in food, fuel and energy.

However, just as with regular mortgages, you don’t have to remain with a single lender for life. As equity schemes have increased in flexibility and are now under the auspices of the Financial Services Authority (FSA), they are open to competition as small changes in interest rates can make a big difference to borrowers.

People are looking to move away from their existing equity release deal after the period of redemption penalties has ended, and many are looking to increase the amount they release.

Home reversion plans are also popular. In these schemes you sell a percentage of your home to the lender in return for a lump sum. However, as there is no fixed date for the money to be repaid, the valuations tend to be lower than market value. A reversionary scheme can also be expensive to redeem early, as you have to pay back the percentage you sold at the current market rate. There are also fees to include such as stamp duty and legal fees on the part you are buying back.

A lifetime mortgage has no term and all repayments are rolled up until the house is sold. The loan size is based on the property value and the age – and sex – of the owners. These loans have redemption penalties for a fixed period of time, so they can work out cheaper.

Before you switch you should consider: redemption penalties; how much you will save; the difference between the two; can you switch within your existing lender’s range to avoid penalties?; do you need to increase your release?

Consider using a qualified independent financial adviser who specialises in equity release schemes to get the best deal.

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