Equity release mortgages are financial products, essentially loans, that allow you to free up the equity tied into your home. For those who own a real estate property and require a supplementary income, this type of loan can be the right option. This is especially true of pensioners who have a house but often require additional cash flow for a better lifestyle, medical expenses etc. There are many different types of equity release schemes, and choosing the right one requires proper understanding of the concept, as well as proper guidance.
As equity release mortgages have become more and more popular, they have also evolved and improved over time. Today, there are not only a greater number of equity release providers in the market but also a great variety in terms of the type of equity release plans. Equity release plans have also become more flexible to suit people in a wider variety of circumstances. Something that was not available a few years back may now have become accessible.
If you already have an equity release mortgage, it may be worth your while to explore the market and see whether there are better options available for you. Switching to a new lender may have several advantages, from lower interest rates to more flexible terms of lending. However, switching your equity release is not always a straightforward process. Before applying for a new loan, it is important to understand all the equity release risks associated with your existing mortgage.
Many lenders charge an early repayment penalty on their equity release mortgages. This changes from lender to lender and also varies with different mortgages. But it could be as low as 5% to as high as 25% of the total amount that is borrowed. These penalties are put in place to protect the lender from losses made on interest when a debt is repaid ahead of term. While ERCs were common until a few years ago, a more competitive market has led to many lenders scrapping this policy.
Sometimes an equity release remortgage with an alternate lender could help make huge savings, however, high early repayment penalties could cancel out any saving and make it economically unviable. In other cases it could still be viable notwithstanding a seemingly high ERC! As always, it is useful to consult a financial adviser, with expertise in the field of equity release mortgages, to help you make the right choice.