How much does equity release cost?

Understand the total cost of equity release before choosing a provider

One of the most appealing things about using equity release to unlock some of the value tied up in your home is that the money you take may not have to be paid back for many years. Your provider should make sure you have a full understanding of the cost of equity release, including any initial set up fees, interest rates (for lifetime mortgages) and advice fees before you take out a product.

The cost of equity release varies from provider to provider and depends also on how you're releasing the equity.

For a lifetime mortgage:

• You borrow a lump sum or a number of smaller payments, and the loan is secured against your home.
• Interest is added to the loan and rolls up.
• The loan and compound interest is usually repaid only when you, or both of you if borrowing jointly, die or move into permanent long-term care.

With some lifetime mortgages you can choose to pay some or all of the interest monthly. By doing this, or by taking the money in instalments through drawdown rather than taking the full amount available as an initial lump sum, you can reduce the overall amount of interest you pay.

For a home reversion plan (not offered by Saga Equity Release):

• You sell all, or part of, your home to a home reversion provider in exchange for a tax-free lump sum or monthly income. The amount the provider offers for the share purchased will be considerably lower than the market value.
• When your home is sold after you die or go into long-term care, the home reversion company gets their share of the sale.
• If you sold the entire property to them, they'll get all the proceeds.

What are the equity release set up costs?

Equity release set up costs will vary according to the provider and how much you borrow. With a lifetime mortgage, you can add some of these set up fees to your loan to avoid too many upfront costs.

Some costs you could face include:

• Application fees: just like taking out a regular mortgage, you might be charged an application fee that covers set up costs.
• Valuation fees:  As with a standard mortgage, the lender will need to know how much your property is worth. There may be fees payable for this.
• Surveyor fees: you may need to pay for a survey of your property.
• Equity release solicitor fees: a solicitor will take care of all the legal work on your behalf, which can be around £750.
• Equity release advice fees: some advisers will charge a fee for advice either before you start to talk to them or on completion of your agreement. The way such charges are dealt with can vary – some firms will offer cashback deals or add the costs to the total loan.

How do interest rates work on lifetime mortgages?

• Interest is usually calculated daily and added monthly to the original loan each year and the next year’s interest is calculated on the new total – i.e., the interest is compounded or rolled up. This means that the total amount you owe increases over time.

• With some products you can pay the interest to prevent the debt adding up. With the Saga Lifetime Mortgage, provided by Just, you can choose to pay some or all the monthly interest amount.

None of the loan has to be repaid until you die or move into long term care, and with the no negative equity guarantee, you won't owe more than your house is worth, or leave your loved ones with debt.

What's the total cost of equity release?

With a lifetime mortgage, the total amount to be repaid when you die or move permanently into long-term care depends on:

• The amount of equity you've released
• How long you've had the loan
• The rate of interest charged

A home reversion plan isn't a loan and so it won't accumulate interest. Instead, the provider will receive the agreed proportion of the property value when it's sold following your death or permanent move into long-term care. No-one will know the monetary value of that proportion until the property is sold.

For example, imagine you sell a 40% share in a property worth £200,000 in return for a lump sum of £40,000. This is at a discount to the £80,000 that this share is actually worth because the provider may have to wait many years to get its money back.

If your house was eventually sold for £300,000 after you died or moved into care, the provider would be entitled to £120,000 (40%) of the sale proceeds.

How Saga Equity Release can help.

The Saga Equity Release team will help you find out whether equity release could help you. Saga Equity Release is provided by HUB Financial Solutions Ltd and is for those aged 55 or over with a UK home worth at least £70,000. Find out more with no-obligation advice from a specialist equity release adviser.

As part of the service, the adviser will consider alternatives to equity release based on your personal circumstances. Please be aware that equity release will reduce the value of your estate and may affect your entitlement to means-tested state benefits.

Saga Equity Release is an advice service that can help you discover the ins and outs of releasing equity from your home without any pressure or any obligation to take out an equity release product. But if you do decide to take out a Saga Lifetime Mortgage, you'll need to pay an advice fee of £799. A lifetime mortgage is a loan secured against the value of your home.