How much does equity release cost?

Equity release costs fall into two categories. Firstly there is the cost of arranging your equity release mortgage. Secondly is the cost of the actual equity loan plus interest accrued, however this is only repaid once you have died or moved into long term care and the house is sold.

The tax free cash sum is there to use how you want however before you decide whether releasing equity from your home is the right thing to do, it is important to understand how much it will cost.

How much will it cost me?

The cost of equity release as mentioned falls into two areas:

  • The initial fees to arrange and put the plan in place
  • The equity release interest rate charged on the loan

Remember the loan and the equity release interest will only be paid off when you die or move into care but as this will affect your family’s inheritance, it is important to understand how much this could be.

What is the initial cost of equity release?

According to the Equity Release Council, the average cost of arranging equity release is between £2,000 to £3,000 and consists of the following payments:

  • Advice
  • Administration and application fees (depending on the lender)
  • House valuation
  • Solicitors fees for providing independent legal advice

The point to remember here is that by talking to an industry expert like Age Partnership, your initial advice is completely free of charge; you only pay if you decide to go ahead.

The amount charged is typically 1.95% of the cash sum you release or a minimum fee of £1,395, which is only payable once your equity release plan is in place.

So the benefits of choosing a company like Age Partnership are as follows:

  • They compare the whole of the equity release market , so they’re not tied to any particular mortgage provider
  • They have arranged special rates with lenders that you may not be able to get elsewhere
  • They work on your behalf agreeing reduced set-up costs with lenders and can even secure cash back payments with some providers once your equity release plan is in place
  • Their initial advice be it over the phone or face to face is completely free
  • Your Age Partnership advisor is there to guide you through the whole process
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Should I downsize or choose equity release?

Equity release interest rates

In addition to the initial set up costs of arranging everything, it is important that you are also clear on the equity release interest rate charged and how much this could mount up to over the years.

Equity release interest rates can either be fixed for the life of the plan or variable but with a capped limit.

Currently mortgage providers charge between 5% to 6% and the interest is compounded either on a monthly or yearly basis, meaning it grows every year.

If you prefer to keep your interest as low as possible, you can choose an equity release lifetime mortgage that lets you make repayments against the interest, so the overall loan won’t be as high when it’s repaid.

Also if you choose the drawdown facility which lets you take an initial amount and then further cash sums as and when you need it, you could be charged a different equity release interest rate for each payment based on the rates at that particular time. It’s important to remember that if you do opt for one of these schemes, you only pay interest on the money you have drawn down, not the money held in reserve.

Read more about the different types of lifetime mortgages available to you

How does the compound interest on equity release work?

Compound equity release interest may sound confusing but it’s actually pretty straightforward. The way it works depends on whether the mortgage provider you use charges interest on a monthly or annual basis:

Monthly interest lifetime mortgages:

  • You secure the loan against your property with the lifetime mortgage, agreeing either a fixed equity release interest rate or a capped one
  • Interest is added to the loan after the first month
  • The following month interest is added based on the original loan plus the interest accrued in the first month
  • The following month, interest is added again based on the original loan plus the interest added over the first two months ...... and so on.

Yearly interest lifetime mortgages

  • You secure the loan against your property with the lifetime mortgage, agreeing either a fixed interest rate or a capped one
  • Interest is added to the loan after the first year
  • The following year, interest is added again based on the original loan plus the interest added in the first year .... and so on.

A Simple Example

Year Loan 6% Interest Rate Total owed
1 £50,000 £3,000 £53,000
2 £53,000 £3,180 £56,180
3 £56,180 £3,370 £59,550
4 £59,550 £3,573 £63,123
5 £63,123 £3,787 £66,910
This is the Equity Release Council’s example of how the annual payments on a £50,000 loan with an interest rate of 6% could work

So basically regardless of whether the interest is added monthly or yearly, it grows much quicker than with a standard mortgage, but more so with the monthly interest equity release plan.

Do keep in mind though that although your equity release loan will be growing, hopefully so will the value of your property and therefore the equity available to you.

How will equity release affect my family’s inheritance?

As mentioned, the loan and the interest accrued over the years are paid when the house is sold and so will subsequently impact any inheritance you intend to leave for family.

The size of the loan, plus the interest will depend on the initial loan and how many years you have had it. The impact this has on your estate and inheritance will also depend on whether house prices have increased and to what degree.

No of Years Property Value Total cash withdrawn plus interest Size of property inheritance
Start £250,000   £50,000   £150,000  
10 yrs £366,518   £73,728   £292,790  
15 yrs £443,786   £89,529   £354,257  
20 yrs £537,342   £108,716   £428,626  

The above examples are based on the 3.96% equity release interest rate currently offered by leading equity release provider Aviva and a house price increase of 3.90%, which is the figure quoted by the land registry for the last 10 years.

Using this scenario, if you had a house valued at £250,000 and released £50,000, in 15 years time the property could be worth £443,786 and the loan is estimated to have increased to £89,529. Therefore you would have a further £354,257 to leave to your estate.

over 55 equity release man

Find out how much equity you could release today

Equity Release Calculator

See how much cash you could release with our equity release calculator

The amount of equity you can release is based on your age and the value of your property, so a good place to start is by using our free and easy to use equity release calculator.

In seconds you can see how much equity could be available to you, so you can get a better understanding of how the money can help.

Your equity release interest rate questions answered

  • How much interest do you pay on equity release?
    • This will depend on the rate of interest charged by the plan provider. As at 1st February 2019 rates vary between 3.72% and 6.15% depending on the scheme you choose.

  • Do you have to pay interest on equity release?
    • For most people equity release is a way of taking a cash sum to make life more comfortable without having to make any payments.

  • What is the cheapest equity release interest rate?
    • The cheapest rate may not be the best one for you, as it will depend on the scheme that you need to provide a cash sum and or a regular income.

  • How much does it cost to arrange an equity release mortgage?
    • Getting quotes, using the calculator and speaking to an adviser will not cost you anything.

      There is no charge for phone calls or home visits. The only charges you pay are when you proceed and complete the agreement and the money is in your bank account. Age Partnership typically charge 1.95% of the money being released plus you will also need to also pay your solicitors fees.

We know it's a big decision!

That's why we have teamed up with Age Partnership one of the UK's leading equity release specialists.

Find out how much cash you could release by trying the calculator.

Equity Release Calculator

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