Interest rates on Equity Release mortgages are at record lows. So, is now the time to switch to a better deal?
Equity release has been around since the 1990s and it’s now more popular than ever. The number of homeowners with equity release continues to increase year by year as more and more of us are choosing to release tax free cash from our homes.
Over recent years equity release has seen some significant changes, such as the introduction of no negative equity guarantees and equity protection. The products are also more flexible. Borrowers can now set up a drawdown facility which enables them to access funds as and when it’s needed. Borrowers can also choose to make full or partial interest payments to counter the effect of rolled up interest.
One of the most significant changes seen of late is the gradual reduction of interest rates. Several years ago interest rates on equity release were averaging around 5-7%. These have gradually been reducing and over recent months some lenders started offering interest rates below 3% for the first time ever.
We are now at a time where equity release interest rates are at an historic low and some are now at similar levels to standard residential mortgages.
The product innovations combined with low interest rates is driving up the popularity and the number of homeowners taking equity release has risen considerably over the past few years.
Why interest rates are important
Most equity release borrowers roll up the interest. This means that rather than making interest payments each month they allow the interest to build up and this gets paid when the house is eventually sold (either on death, going into permanent care or selling the property).
The effect of compounding the interest means that for higher interest rates the loan will grow quicker and potentially reduce the equity remaining for the beneficiaries. Therefore a lower interest rate will slow down the rate the loan grows, so it’s vital that a low rate is obtained when considering equity release.
Are you paying too much?
Many homeowners who took out equity release a number of years ago would have been placed on interest rates ranging from 5-7%.
Now that interest rates are now much lower, this may be a good time to revisit your existing equity release deal and see if you now qualify for a lower rate. This could result in more equity in your property for your beneficiaries and loved ones, because the loan won’t increase as fast.
Check for penalties
Whilst a number of borrowers will now qualify for lower interest rates it doesn’t necessarily mean that switching will be the right thing to do. Most equity release mortgages have early repayment penalties which need to be considered. It’s therefore important to weigh up whether the benefits of a lower interest rate will outweigh any penalties that might come into play.
How we can help
If you have an existing equity release arrangement and are paying a high interest rate then it’s worthwhile checking to see if you now qualify for a lower rate and to identify if switching can help save you money.
At WLS Financial Services we provide a free review to assess your current equity release arrangement.
We will tell you what rate you will now qualify for and assess any penalties that may apply.
Our independent equity release advisers will search the entire marketplace to help identify if it’s worthwhile making a switch. We will only recommend a switch if we can save you money and preserve more equity for you and your loved ones.
The Equity Release Council
WLS Financial Services is a member of The Equity Release Council, the industry body for the equity release sector.
To help protect consumers, the Council sets certain standards and insists on a code of conduct for both providers and advisers to abide by.
As members of the Council, we abide by the safeguards and code of conduct they have in place for advisers, which means we conform to the best practices within the sector.
If you would like us to review your equity release mortgage, please contact us.