An older homeowner who has taken out an equity plan in recent years could help save their heirs many thousands of pounds by switching over to a lower deal.
They are being urged to act sooner rather than later – before the Bank of England starts to push up interest rates and new plans become more expensive.
Older homeowners can access cash from their equity by using equity release plans. They are typically interest-only loans that do not require monthly payments. Instead, they are rolled up in the loan. The interest rate is fixed right from the beginning.
Happy holidays: MoS readers John Stevens and Christine Stevens purchased a string of cruises with equity release loans
After the launch of Age Partnership’s switch service in spring, hundreds of homeowners have already saved significant amounts of money by switching to lower-rate loans.
Age Partnership, the largest equity release broker in the country, promised to help everyone with an equity mortgage switch to a lower rate.
The company was contacted by more than 2,000 people to see if they could save money. It says those who have successfully switched have saved an average of £86,560 in interest costs – based on an average life expectancy of 14 more years. The total predicted savings made by everyone who has switched plans through the broker so far is in excess of £1,817,000.
Steve Auckland, Age Partnership chief executive says, “When we launched we were overwhelmed by the response. It showed the lack of awareness regarding the possibility to switch plans.
Of those who have successfully switched, the average interest rate of their original loan was 6.4 per cent – with the average new rate being 3.3 per cent.
John Stevens, 84, who lives with wife Christine in Burnham-on-Crouch in Essex, had taken out four equity release mortgages totalling more than £120,000 over the past 20 years.
John says, “We spent the money mainly for cruises, more then a dozen of which.” John was resigned to the fact that his loans were growing in size and interest rates ranged from 5.9 to 7.2%. After speaking to Age Partnership, he has now switched all four loans into one loan at a rate of 3.4 per cent, potentially saving him £45,000 over the next ten years.
John admits, “I should have done this sooner, but it wasn’t possible for me to,” It feels better to move to a lower interest rate, and our two sons are better off when we’re gone. They will receive more of the home’s original value.
An equity release plan will repay the loan if you die or enter long-term care. This can be done by selling the home. Nearly all plans guarantee that the debt will not exceed the home’s value. With John and Christine’s house, bought for £12,750 in 1973, now worth £320,000, John is aware his sons would be even better off without the loans. He has no regrets. He said, “We had some wonderful holidays.”
Former insurance broker Tony Lee, 79, was another MoS reader who was able to switch his equity release mortgage – from 6.6 per cent fixed to just 2.9 per cent, potentially saving £90,000 over the next 15 years. He says, “I’m so glad that I did it and it wasn’t a hassle.” ‘It was alarming to me that I was paying such an high interest rate, when Aviva was offering plans for new customers at much lower rates.
‘I asked them to reduce my rate, but they didn’t want to know, so I’m now with Scottish Widows and on a much lower fixed rate.’
Carole Smith from Wanstead, East London, was able to move her original equity release plan – taken out to pay off an interest-only mortgage – so that the interest rate was reduced from 5.7 per cent to 2.5 per cent.
She said, “I had no idea that I could switch mortgages.” ‘I only took out an equity release plan to stay in my home. Even with the early repayment fee I had to pay to get rid the original plan, it was worth the difference in interest rates.
Not everyone can switch. Barry Jones, 74, from Sidcup, Kent, has taken out four equity release loans totalling £104,000 to pay for home improvements, holidays and bills. He admitted that it was too easy to get this extra capital in hindsight.
The loans, which have fixed interest rates of between 4.7 and 6 per cent, have now escalated to £140,000. But the stumbling block was early repayment penalties of just under £25,000.
Barry says: ‘We could get a lower loan rate, but we would have had to pay the £25,000 early repayment charge. This would have meant that it would have taken eight years for us to be in a better place as a result. We were stuck between two rock and a hard spot and decided to sell our home to pay off the outstanding loans.
Age Partnership could not help 14 percent of those who wanted to change. The biggest obstacle was often early repayment charges.
Auckland says that switching will not be for everyone. I encourage everyone, however, to come forward for a free review and be fully informed of their options. There has never been a better moment to make the switch.
To get your free guide to equity release fill in the form below, go to www.thisismoney.co.uk/equity-release-guide, or call 0844 571 0968.