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How much will equity release cost?

Chris Torney / 27 September 2016 ( 10 July 2019 )

The eventual cost could be significant, with some initial charges too…

A man holds a model of a house and a pile of coins to represent how much equity release costs

One of the most appealing things about using an equity release scheme to unlock some of the value tied up in your home is that the money you take does not have to be paid back for many years.

What is equity release?

Typically, equity release providers are only repaid when customers die or move out into long-term care. 

Nonetheless, the eventual cost of such schemes can be significant – and there may also be some initial charges relating to the setting up of your equity release plan

So how much will equity release actually cost?

Initial charges

These really depend on the provider you choose, but be sure to check what fees you face before you agree to a plan. 

You can expect to pay your financial advisor for the guidance they offer, as well as the provider’s administration or application fees. 

On top of that, you might have to pay a solicitor for carrying out the necessary conveyancing work as well as the surveyor who values your property.

The way such charges are dealt with can vary: some firms will offer cashback deals or add the costs to the total loan. 

The Saga Equity Release Advice Service offers offers FREE advice and is a no-obligation, no-pressure service dedicated to finding out if equity release is right for you.

Lifetime mortgages

The most popular type of equity release plan is a lifetime mortgage. 

This typically allows you to borrow a lump sum against your property: the money is repaid, with interest, only when you die or move into long-term care.

Interest rates on lifetime mortgages tend to be higher than on standard residential mortgages. 

Are you still paying off your mortgage?

And because no repayments are made as the scheme goes on, interest charges can mount up quickly: remember, each year the interest due is added to the overall loan and from then on will itself accrue interest.

As an example, at a fixed interest rate of 6%, an equity release loan will double in size after roughly 12 years. At 5% this would take 14 years. However do your research, as some equity release products now allow you to pay off the interest monthly.

How much your equity release deal will actually cost depends on how long it runs for – and this is impossible to predict. 

But it is important you ensure you sign up for a plan with a “no negative equity” guarantee: this means that what you or your family owe the provider can never exceed the value of your property.

By taking money from your lifetime mortgage in instalments through a drawdown scheme rather than as an initial lump sum, you can reduce the amount of interest you’ll have to pay.

Home reversion plans

The other main type of equity release scheme is home reversion, where you sell a share in your home to a provider in return for a lump sum and the right to remain living in your property.

How much this actually costs depends on what that share is worth when your home is eventually sold against what its value was when the deal was struck.

Discover more about equity release and moving house

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 will 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 of the sale proceeds.

Interested in finding out more about equity release? Then why not use our free equity release calculator to find out how much money you could release from your property? Alternatively, visit our equity release page for more information.

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The opinions expressed are those of the author and are not held by Saga unless specifically stated. The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.