RETIREES with equity release plans are urged to check if they could save thousands of dollars a year by changing their lifetime mortgage.
Sun’s research shows that most lenders aren’t proactively contacting customers about the change, although interest rates have come down and many homeowners can save on interest payments.
Nearly 350,000 households have a mortgage with capital release and around 5,295 changed contracts last year.
Typically, they have reduced their rate from 5.1% to 3.6%, saving an average of £2,016 a year.
Former nurse Sue Richardson saved £150,000 by switching the offer.
She said: ‘The economy is absolutely amazing. I can’t believe I didn’t know I could upgrade to a cheaper deal.
Sue, 77, of Windsor, Berks, and her late husband Gil appealed for a stock release in 2008, shortly after retiring.
They pulled out £75,000 with Hodge, taking the money in five separate installments to spend on sprucing up their home.
Sue was paying seven per cent which saw her debt more than double to £157,580 in 13 years.
But after switching last year, she enjoys 2.93% interest with Pure and will save around £150,000 in interest over the rest of her life.
Sue added: “The more money I can keep in stocks, the better.”
Questions and answers
Here we answer some common questions. . .
WHAT IS THE EQUITY RELEASE?
This is a mortgage loan that allows you to free up some of the equity in your home, tax-free.
It’s only available to people aged 55 and over, but it’s an increasingly common way to get extra cash in retirement.
Before doing so, weigh the pros and cons. Withdrawing money from your home will reduce the amount you have to pass on when you die – and it could impact benefits such as state pension and universal credit.
Consider alternatives such as downsizing and seek advice from an Equity Release Council member company.
You can get the money as a lump sum in cash or in smaller chunks.
Like any other mortgage, you will pay interest on the money because it is a type of loan.
But you can choose not to pay monthly interest. Instead, it can be added to your debt, which isn’t paid off until your home is sold because you die or move into a long-term care facility.
WHAT IS A LIFETIME MORTGAGE?
The most common type of equity release. You take out a loan secured by your property and get a cash lump sum or regular income.
Most deals come with a ‘no negative equity’ guarantee, which means that even if your property loses value, you don’t leave any debt behind.
The equity release has been criticized for setting interest rates higher than the standard cost of mortgages.
WHAT ARE THE RULES AROUND CHANGE?
Equity release mortgage agreements do not expire after two or five years like standard agreements, they are set to last for the remaining lifetime.
If you want to pay off the debt before you die or move into a long-term care facility, you usually have to pay a prepayment charge.
There’s no rule preventing you from switching to a cheaper interest rate, but it will normally trigger the prepayment charge. After that, it might not be worth it.
Some lenders offer prepayment options, without penalty, or allow you to transfer your loan to a new property if you move.
Under the current rules, providers must send an annual statement to customers, with the amount of their loan and the interest they have accrued, details of prepayment charges and the cost of redeeming the life mortgage.
WHAT DO LENDERS DO?
We contacted major equity release providers about their policies. Only Legal & General Home Finance, Just and One Family said they were proactively contacting customers to switch to a new offer.
LV, Aviva and Nationwide said their annual statements remind customers they can review their agreement, while new lenders Standard Life Home Finance and Scottish Widows have not yet put a plan in place to contact borrowers.
Canada Life and More2Life are not proactively communicating with customers about the change. Pure Retirement did not respond to our request.
Steve Wilkie of brokerage Responsible Life said: ‘The industry has been bad enough in the past to encourage homeowners with lifetime mortgages to upgrade to better deals, but that is changing.
Broker Age Partnership said all customers should be told they have the option to switch.
“The equity release has grown so much over the past few years with lower rates and flexible terms,” said Matt Stirland, head of end-of-life lending.
“Regular reviews and plans for change are the next step in its evolution.”
HOW TO TRANSFER A LIFETIME MORTGAGE:
Find your latest annual statement of equity publication.
Contact a broker specializing in equity release – these are complicated products, so it’s not easy to compare.
They will check the documents to see if there are any prepayment charges or similar charges to be aware of. Even with fillers, it can still be worth changing.
Wilkie estimates that homeowners who switch lifetime mortgages typically save between £30,000 and £40,000 in interest on the remainder of their loan.
The impact may be greater for younger retirees, as a longer life expectancy means a better rate has more time to have an impact.
“I will leave more to the grandchildren”
PATRICK BUCKINGHAM and his wife Ausma used the equity release in 2017 to release the wealth tied up in their home and help their two grandchildren move up the property ladder.
They released £100,000 through a lifetime mortgage with More2Life at an interest rate of 3.9%.
A clause in Patrick’s life mortgage said that if he or his wife died within the first three years, the loan could be prepaid without penalty – and unfortunately Ausma died in 2018.
Patrick, 82, pictured, from Warwick, asked his adviser if he could save money by switching lenders.
By switching to a rate of 2.27% with Responsible Lending, he reduced the interest he will pay by £38,227.
Patrick said, “I can pass on even more to my grandchildren.”
“I was surprised at the economy”
EX-POLICEMAN Kevin Sage has saved £62,000 after a routine review by his broker revealed he could unlock a lower rate just two years after the equity was released.
Kevin and his wife Shirley, both 65, took out a £100,000 equity release mortgage with More2Life in 2019 at a rate of 5.8%, using the money to pay off their interest-only mortgage .
Just two years later, the couple were able to switch to a lower rate of 4.77% with Legal & General Home Finance.
“I thought once I made the first deal it was for life,” said Kevin, from Sidcup, Kent.
“I had no idea I could change interest rates until I got a phone call from my Age Partnership broker saying they were going to review my plan. I was very surprised at the economy.