I saved £150,000 by halving our interest rate with a simple home loan switch

RETIREES with equity release plans are being urged to check if they could save thousands a year by switching their lifetime mortgage.

Sun research shows most lenders do not proactively contact their customers about switching — although interest rates have fallen and many home­owners could be saving on interest payments.

Almost 350,000 households have an equity release mortgage, and around 5,295 switched their deal last year.

Typically, they cut their rate from 5.1% to 3.6%, saving an average £2,016 a year.

Former nurse Sue Richardson saved £150,000 by switching deals.

She said: “The saving is absolutely amazing. I can’t believe I didn’t know I could move to a cheaper deal.”

Sue, 77, from Windsor, Berks, and her late husband Gil took out equity release in 2008, not long after they retired.

They withdrew £75,000 with Hodge, taking the cash in five separate chunks to spend on sprucing up their home.

Sue was paying a rate of seven per cent, which saw her debt more than double to £157,580 in 13 years.

But after switching last year she is on an interest rate of 2.93 per cent with Pure and will save an estimated £150,000 in interest over the rest of her life.

Sue added: “The more money I can keep in equity the better.”

Q & A

Here we answer some common questions . . . 

WHAT IS EQUITY RELEASE?

It is a mortgage that allows you to release some of the equity you own in your home, tax-free.

It is only available to those aged 55 and over but is an increasingly common way to get extra cash in retirement.

Before doing it, weigh up pros and cons. Taking money out of your home will reduce how much you have to pass on when you die — and it could impact benefits such as state pension and universal credit.

Consider alternatives such as downsizing, and get advice from a company that is a member of the Equity Release Council.

You can get money as a cash lump sum or in smaller chunks.

Like any other mortgage, you will pay interest on the money, as it is a type of loan.

But you can choose not to pay monthly interest. Instead, it can be added to your debt, which is paid off only when your home is sold because you die or move into long-term care.

WHAT IS A LIFETIME MORTGAGE?

The most common type of equity release. You take a loan out secured against your property, and get a cash lump sum or regular income.

Most deals come with a “no negative equity” guarantee, which means that even if your property falls in value, you do not leave debt behind.

Equity release has been criticised for setting interest rates higher than standard mortgages cost.

WHAT ARE THE RULES AROUND SWITCHING?

Equity release mortgage deals do not expire after two or five years like standard ones, they are set up to run for your remaining life.

If you want to repay the debt before you die or move into long-term care, you must usually pay an early repayment charge.

No rules stop you switching to a cheaper interest rate, but it will normally trigger the early repayment charge. After this, it may not be worth your while.

Some lenders offer options to repay early, penalty-free, or allow you to port your loan to a new property if you move.

Under current rules, providers should send an annual statement to customers, with the amount of their loan and interest they have accrued, details on early repayment charges, and the cost of redeeming the lifetime mortgage.

WHAT ARE LENDERS DOING?

We contacted leading equity release providers about their policies. Only Legal & General Home Finance, Just and One Family said they proactively contact customers about switching to a new deal.

LV, Aviva and Nationwide said their annual statements remind customers they can review their deal, while new lenders Standard Life Home Finance and Scottish Widows have yet to put a plan in place to contact borrowers.

Canada Life and More2Life do not proactively contact customers about switching. Pure Retirement did not respond to our approach.

Steve Wilkie, of brokerage Responsible Life, said: “The industry has been pretty bad in the past at encouraging homeowners with lifetime mortgages to switch to better deals, but this is changing.”

Broker Age Partnership said all customers should be told they have the option to switch.

“Equity release has developed so much over the last few years with lower rates and flexible terms,” said Matt Stirland, head of later life lending.

“Regular reviews and switching plans is the next step in its evolution.”

HOW TO SWITCH A LIFETIME MORTGAGE:

Track down your latest equity release annual statement.

Contact a broker who specialises in equity release — these are complicated products so it’s not easy to compare yourself.

They will check paperwork to see if there are early repayment charges or similar fees to be aware of. Even with charges, it may still be worth switching.

Wilkie estimates homeowners who switch lifetime mortgages typically save £30,000 to £40,000 in interest over the remainder of their loan.

The impact can be greater for younger retirees, as longer life expectancy means a better rate has more time to have an impact.

'I'll leave more to grandkids'

PATRICK BUCKINGHAM and his wife Ausma used equity release in 2017 to free wealth tied up in their home and help their two grandchildren get on the property ladder.

They released £100,000 through a lifetime mortgage with More2Life at an interest rate of 3.9 per cent.

A clause in Patrick’s lifetime mortgage said that if he or his wife died in the first three years, the loan could be paid off early without penalty – and sadly, Ausma died in 2018.

Patrick, 82, pictured, from Warwick, asked his adviser if he could save money by switching lender.

By moving to a rate of 2.27 per cent with Responsible Lending, he slashed the interest he will pay by £38,227.

Patrick said: “I can pass even more on to my grandchildren.”