9 Simple Steps to Find the Best UK Equity Release
When shopping for anything, the first step is to know what you want. Whether you are shopping for a house, a vehicle, or gelatin, you must first determine which product you want. Likewise, when looking for an equity release mortgage, you can follow particular steps, in order to secure the right mortgage that meets your needs:
1. Determine which equity release scheme is right for you.
The two main types of these mortgages both provide an array of advantages and disadvantages. You should examine each type of mortgage carefully, to determine which one is ideal for your particular situation. The lifetime mortgage lets you borrow equity against your own home, and you can repay it after your death (technically, someone else will handle it). Meanwhile, in a home reversion scheme, you sell a portion of your home, and then receive either a lump sum or monthly income.
After choosing between a lifetime mortgage and a home reversion scheme, it is time to:
2. Start searching for the right equity release companies
Keep in mind that this decision will be one of the most important ones that you make in your entire life. Therefore, it is vital that you carefully choose a provider that can best meet your financial goals.
The task of choosing an equity release provider may seem daunting at first, considering that you now have more options than choosing a particular type of equity release mortgage. In fact, over 20 equity release providers exist on the market and between them, they offer over 30 different types of equity release plans. However, again, it is vital to select carefully a provider that would be ideal for you. Consider the importance of this decision, in terms of your future. Furthermore, think about how it will affect your family members. The majority of providers of equity release solely provide either lifetime mortgages or home reversion schemes.
3. Verify that the equity release providers are on board SHIP
SHIP stands for Safe Home Income Plans. When searching for a provider for an equity release mortgage, it is vital that it is a member of this trade body. Leading providers of equity release and home income plans, support SHIP. It first emerged in 1991, with its function being to safeguard holders of plans and to promote equity release plans and home income plans that are safe.
SHIP provides two fundamental guarantees
- You may live in your property: 1) for the remainder of your life, OR 2) until you must enter residential care, OR 3) until you decide to move to another house.
- You or your property will never owe more than the property’s value.
Always make sure that any and every equity release provider that you examine, is fully dedicated to upholding SHIP’s principles. And make sure that the provider can put such a guarantee in writing, through a signed certificate.
4. Become a fact-collector (or have an IFA help you)
Making any decision becomes more manageable by gathering all of the facts first, including how does equity release work. You can perform this task yourself, or get the assistance of an Independent Financial Adviser (IFA), to help you in your hunt. IFAs are simply personal finance specialists who work with a plethora of financial products. Typically they specialise in one particular area in the business.
Choosing an IFA is oftentimes more advantageous than selecting a "mortgage adviser" as the former is always required to have secured various qualifications. In addition to their knowledge and skills, an IFA also has special mortgage-hunting tools, such as software. This makes sifting through mortgage types that can literally range in the thousands, much more manageable.
The benefit of using an IFA is that no direct charges are involved. That sounds too good to be true, right? Well, the reason is that once you choose a particular equity release plan, the IFA will then be paid for his or her services, via commission from the plan provider. Make sure that the IFA provides an "initial disclosure" document that reveals the services that he or she will provide; and a "facts illustration" for each plan under consideration, to aid in your comparison of different plans.
Make sure to also review the information from FSA the UK regulator’s warning about unsuitable advice.
5. Read all paperwork carefully
It is always vital to take the time to carefully go over all of the paperwork related to different equity release plans. Keep in mind how important this decision is, and particularly how it will affect both you and your heirs. Read everything on the documents, and the fine print in particular.
6. Ask the right questions
Remember that no "stupid" questions exist when dealing with an IFA or a pension provider directly. Here are some questions that you should certainly consider asking:
- How much will this cost? For lifetime mortgages, learn what the interest rate is, whether the rate is fixed or variable, etc. Instead of receiving a lump sum, can you avail of a drawdown plan?
For home reversion schemes, learn about what percentage of the property’s market value you will receive.
For both types of mortgages, find out about various extra costs, such as set-up costs, legal fees, valuation, and arrangement.
- Are there any penalties? Determine if certain penalties are charged for various circumstances, such as if you want to want to free yourself from a deal with a particular equity release provider.
- How would changes in the future affect you? For instance, is the plan portable if you decide to move to a different house? And if the plan is indeed portable, are there any restrictions on what property you could purchase?
- Do they provide negative equity assurance? Never choose a plan that does not guarantee that your property will never owe more than its value.
7. Get quotes from a variety of equity release providers
8. Review each plan’s pros, cons, and conditions
9. Think carefully before signing on the dotted line
An equity release should always be a last resort mortgage. Consider other options, such as moving into a smaller house.
Tags: how does equity release work | how does equity release work | equity release companies | equity release companies | equity release scheme | equity release scheme | equity release plans