Equity-free homeowners could switch to a cheaper deal


Elderly owners who have taken out a capital release plan in recent years could save their heirs tens of thousands of dollars by opting for a cheaper offer.

They are urged to act as soon as possible – before the Bank of England starts raising interest rates and the new plans get more expensive.

Equity release plans allow older homeowners to extract money from the equity accumulated in their home. They usually take the form of an interest-only loan, but in most cases borrowers don’t pay the interest every month. Instead, they are bundled into the loan. The interest rate is fixed up front.

Happy Holidays: MoS Readers John and Christine Stevens Paid Off A Series Of Cruises Using Equity Release Loans

Hundreds of homeowners have already saved huge sums of money by switching to a lower rate loan, following the launch of Age Partnership’s change service in the spring of this year.

At the time, Age Partnership, the nation’s largest release brokerage, was committed to trying to help everyone with a stock release mortgage downgrade.

More than 2,000 people have contacted the company to find out if they can save money. It says those who managed to change jobs saved an average of £ 86,560 in interest charges – based on an average life expectancy of 14 years longer. The total expected savings to anyone who has switched plans through the broker so far is over £ 1,817,000.

Steve Auckland, Managing Director of Age Partnership, said: “When we launched, we were overwhelmed with the response. This highlighted the lack of awareness of the possibility of changing plans.

Among those who made the switch, the average interest rate on their original loan was 6.4%, with the new average rate being 3.3%.

John Stevens, 84, who lives with his wife Christine in Burnham-on-Crouch in Essex, had taken out four parole mortgages totaling more than £ 120,000 in the past 20 years.

“We spent the money mostly on cruises, over a dozen of them,” says John. With interest rates ranging from 5.9% to 7.2%, John had resigned himself to seeing loans accumulate interest quickly and gain momentum. After speaking to Age Partnership he has now converted all four loans into one loan at a rate of 3.4% saving him £ 45,000 over the next ten years.

“I should have done it sooner, but I didn’t know I could,” says John. “It’s much better to switch to a lower interest rate and our two sons will be much better off when we die. They’ll have more home value left.

With an equity release plan, the loan is paid off if you die or go to a long-term care facility. This involves the sale of the house. Almost all plans guarantee that the debt cannot exceed the value of the home. With John and Christine’s house, bought for £ 12,750 in 1973, now worth £ 320,000, John realizes his sons would be even better off without the loans. But he doesn’t regret anything. “We had a great vacation,” he says.

Former insurance broker Tony Lee, 79, was another MoS reader who was able to change his mortgage with release of equity – from 6.6% fixed to just 2.9%, which helped save £ 90,000 over the next 15 years. “I’m so glad I did and it wasn’t a problem,” he says. “I had found it alarming to pay such a high interest rate when my provider Aviva was offering new customers packages at much lower rates.

“I asked them to lower my rate, but they didn’t want to know, so I’m now with Scottish Widows and at a much lower fixed rate.”

Carole Smith of Wanstead, east London, was able to shift her original equity release plan – taken out to pay off an interest-only mortgage – so the interest rate was cut by 5 , 7 percent to 2.5 percent.

“I didn’t know I could change my mortgage,” she says. “I only took out an equity release plan to stay in my house. Even with the prepayment charge I had to pay to get rid of the original plan, the interest rate difference was worth it. ‘

Not everyone could change. Barry Jones, 74, of Sidcup, Kent, took out four equity release loans totaling £ 104,000 to pay for home renovations, vacations and bills. He admits, “In hindsight, it was far too easy to get that extra capital.

The loans, which have fixed interest rates between 4.7 and 6 percent, have now climbed to £ 140,000. But the stumbling block was prepayment penalties of just under £ 25,000.

Barry said: ‘We could get a lower loan rate, but we would have had to pay the prepayment charge of £ 25,000. This meant that it would have taken about eight years before we were in a better position as a result of the change. Left between a rock and a hard place, we decided to sell our house and downsize to clear the outstanding loans. ‘

Age Partnership was unable to help 14% of those who wanted to change. The prepayment charge was often the main obstacle.

Auckland says, “The change will not be for everyone. But I encourage everyone to come forward and have a free exam so that they are fully aware of their options. There has never been a better time to change.

To get your free share release guide, complete the form below, go to www.thisismoney.co.uk/equity-release-guide, or call 0844 571 0968.

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