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How much does equity release cost?

From set up fees to interest rate calculations, we look at the full picture

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 doesn't 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, before you take out a product.

What does equity release cost?

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 against your property.
  • Interest is added to the loan and compounded.
  • The loan and compound interest is usually repaid only when you, or both 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 a drawdown scheme 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 for a tax-free lump sum or monthly income. This will be at a discount of the market value.
  • When your home is sold after you die or go into long-term care, the reversion company gets their share of the sale.
  • If you sold the entire property to them, they'll get all the proceeds.

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

But it's important you ensure you sign up for a plan with a "no negative equity" guarantee. With Saga Equity Release, your beneficiaries will never have to repay more than your home sells for, even if it is less than the amount owed.

Saga Equity Release is provided by HUB Financial Solutions Limited, a business committed to finding the right financial solution for people approaching, or in, retirement.

Find out more about Saga Equity Release.

What are the equity release set up costs?

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

With some providers, costs you could be facing include:

  • Application fees: just like taking out a regular mortgage, you might be charged an application fee that covers set up costs.
  • Valuation fees: you'll need to have proof of a recent valuation of your property. Some estate agents will do this free of charge.
  • Surveyors fees: you may need to pay for a survey of your property.
  • Equity release solicitors' fees: a solicitor will take care of all the legal work on your behalf and make sure everything's done correctly until you receive your money.
  • Advice fees: some providers 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.

The advice you receive through Saga Equity Release is a free so you'll be able to discover the facts about releasing equity from your home without having to pay an advice fee. With the Saga Lifetime Mortgage, provided by Just, there are no set up or valuation fees to worry about.

Find out how much equity you could release.

Use our calculator now

What is the interest rate on equity release?

In early 2022, the average interest rate on lifetime mortgages was around 4%, with the cheapest rates nearer to 3%. This is lower than they have been for years but is still typically higher than most standard mortgages. However, rates are starting to creep up according to the Equity Release Council's Spring 2022 Report.

With a lifetime mortgage where you are not making full monthly payments the interest rate for equity release works like this:

  • 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.
  • With some products you do have the opportunity to pay the interest to prevent the debt adding up.

This means that the total amount you owe increases over time, but none of this 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
  • Any additional fees that haven't been cleared at the start of your agreement, such as the set-up costs, which might be anything between £1,500 and £3,000.

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 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.

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. Find out more with no-obligation advice from a specialist equity release adviser.

Is equity release right for me?

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Whether you have questions about equity release or just want to find out more, the expert team are on hand to help.

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More on equity release

For more information and to help you understand equity release a little better visit some of our other articles and pages.