Home Finance specialist Pensioners can save £50,000 by switching equity release plan as interest rates fall | Personal finance | Finance

Pensioners can save £50,000 by switching equity release plan as interest rates fall | Personal finance | Finance

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Yet many miss out because they don’t realize they are free to switch equity release plans after withdrawing one. They assume they are locked in for life, when in practice they are free to shop and could reap massive savings doing so.

Life mortgages with capital release allow older homeowners to raise funds on the value of their home in retirement, without having to sell.

They and their partner have a guaranteed right to continue living their lives and will never owe more than the value of their property.

They don’t have to make interest payments over their lifetime, which accrue year after year.

The interest and the original loan are compensated when the property is sold after the death or the assumption of the owners.

The lower the interest charges, the less the insured will have to pay upon death. This means that more real estate wealth will fall back into their estate to be inherited by their loved ones.

The average equity release plan charged 6.15% interest in 2016, according to figures from Moneyfacts.

That stands at just 3.51% today, according to new figures from specialist capitalization advisers Age Partnership.

End-of-life lending executive director Matt Stirland said switchers are realizing big savings. “Age Partnership customers who switched plans last year will save £51,000 in interest over the average 16-year term of their plan.”

Equity release clients should act quickly as the Bank of England has raised base rates twice in recent months and that is already driving up lifetime mortgage rates, Stirland warned.

READ MORE: Is Equity Release right for me?

“Rates are starting to climb, but they are still much lower than in the past. So maybe it’s time to consider changing the plan before it goes up much more,” Stirland said.

Many don’t realize that switching is an option because their original advisor or broker no longer works, leaving them without access to advice.

In some cases, the partner who arranged the original plan has passed away and the surviving spouse doesn’t understand how it works and the potential savings from switching, Stirland said. “Many don’t involve their other half when releasing equity, so don’t realize the importance of having regular checkups.”

Anyone who’s had their existing capital release loan for 12 months or more can have their plan reviewed, Stirland said, and a good adviser should do it for free and without obligation.

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Switching equity release plans will not suit everyone. “Sometimes the prepayment charge can be too high to make switching plans worthwhile. You won’t know until you get the exam,” Stirland added.

Demand for equity release hit a new record high in 2021, with total lending rising 24% to £4.8bn.

Rachel Springall, finance expert at Moneyfacts, said: “Some use the release of equity to pass on a previous inheritance to help children climb the property ladder, others to fill the void in their pension pots or face the rising cost of living.”

To find out if you could save by changing your existing plan, call the Express Money Equity Release service provided by Age Partnership on 0800 158 2373, or to order your FREE Express Money Equity Release Guide click here.