Equity release does come with some associated costs and there are certain fees that you will have to pay. Fees vary from provider to provider but there are some similarities. You’ll also have to be aware of interest rates, as interest is compounded.
This guide will look at the various costs and fees to be aware of before taking out an equity release product. This will be a general look at how equity release works, rather than focusing on one provider.
The information on this page should not be considered as financial advice. If you are unsure what’s right for you, please make sure you speak to a financial adviser.
How much does equity release cost?
Equity release costs around £1,500 - £3,000 in fees according to Money Saving Expert. Once you add in compound interest which, based on current interest rates at time of writing, this will double your loan amount every 10 years or so.
Equity release costs could include some or all of the following:
- solicitors’ fees
- broker fees
- advisor fees
- application fees
- valuation fees
- early repayment fees if required
- total interest owed
These associated fees will vary from provider to provider as well as the method you choose to take out equity release. For example, if you work with an adviser they may charge a capped fee, or a percentage of the loan. You should also check when these fees are due, as this can vary by provider.
When are equity release fees due?
Equity release fees are commonly due when the money from the equity release product you’ve chosen is transferred to your account. This signifies completion so providers know you’ve gone through with the loan. However, this may vary depending on the provider you choose and any advisers, brokers and solicitors you work with.
If you’re ever unsure, always ask your provider or adviser.
Equity release and interest rates
The other significant factor that makes up the largest portion of additional costs in equity release is the interest rate. There are some key points to know about interest rates on equity release. Interest rates only apply to lifetime mortgages, not to home reversion plans. Lifetime mortgages and home reversion plans are the two types of equity release, however lifetime mortgages make up the majority of the equity release market these days.
1. Equity release interest is compound
Compound interest is great for savers but not ideal for borrowers. Compound interest is where you are charged interest on interest, rather than just on the original loan amount like you would be with a traditional mortgage.
The interest rate which applies from the start of your lifetime mortgage will calculate the amount of interest you are due to pay at the end of your loan, which ends when it is fully repaid. Based on how long your mortgage runs for will affect the amount due. Interest on lifetime mortgages is commonly calculated using MER, which stands for Monthly Equivalent Rate. Always check this before taking out an equity release product.
The table below shows an example of how the interest could be adding up based on a 5.5% interest rate (MER) and borrowing £40,000.
| Year | Year start balance | Interest | Year end balance |
| 1 | £40,000.00 | £2,256.31 | £42,256.31 |
| 5 | £49,818.02 | £2,810.13 | £52,628.15 |
| 10 | £65,545.76 | £3,697.30 | £69,243.06 |
| 15 | £86.238.80 | £4,864.55 | £91,103.35 |
| 20 | £113,464.72 | £6,400.30 | £119,865.02 |
| 25 | £149,285.96 | £8,420.90 | £157,706.86 |
| 30 | £196,416.10 | £11,079.41 | £207,495.51 |
Need help with equity release?
Releasing equity from your home isn’t an easy decision. For a free and impartial chat, speak to one of our friendly advisers.
You can also order a free Equity Release brochure.
2. Interest rates are fixed at point of purchase for entirety of product lifecycle
When you take out a lifetime mortgage, the interest rate you get is fixed for the entirety of the lifetime mortgage. The interest rate you get is often displayed as AER and MER. AER, or Annual Equivalent Rate, is the interest rate that is added over one year. The MER is the Monthly Equivalent Rate and represents the interest added over one year but divided every month.
As lifetime mortgages don’t require you to make any monthly payments, the interest is often calculated and added monthly. Compound interest does add up quickly, and your total amount owed can soon double.
3. How equity release is calculated
The interesting thing about equity release and lifetime mortgages is that the interest rate calculated is a personal illustration. Everything from your health, postcode and credit history to your requested loan to value (LTV) can affect the interest rate you are offered.
This chart shows the average interest rate over the past 3 years to provide an idea of what the market has looked like:
It’s worth making sure that you answer any questions asked by an equity release adviser as honestly as possible and with all the information you know. Little things like your current postcode could actually give you a better interest rate, so being truthful and detailed in your answers is key.
Generally, your equity release provider will send you a Tariff of Charges document. This details all the fees and charges that you might incur during the lifetime mortgage. It is important to review this document with your adviser and keep it safe.
If you’re looking to take out equity release, then an equity release adviser will spend some time with you over the phone to get all the information they need to make the best recommendation for you. You may be asked about:
- Your marital status
- Your age, and age of any partners
- Any product features such as guaranteed inheritance
- Your credit history and any CCJs (County Court Judgements)
- Requested Loan to Value
- Where you live currently
- Any plans you have to move
- Your health and any diagnoses you have, or whether you’re under medical investigation
How much does home reversion cost?
Home reversion is when a home reversion provider purchases some or all of your house and pays you a cash lump sum. In return, you get to live in your house either rent free or for a nominal amount and maintain the home in a saleable condition.
As such, home reversion costs less over your lifetime, as no interest is built up. Instead, you should be aware that you should budget for:
- Building insurance
- Home maintenance costs
- Emergency repairs
Home reversion providers may conduct regular inspections of your home to ensure it is maintained in a saleable condition so it’s important that you are able to keep it in good condition in line with the conditions of your plan.
Please be aware that LV= do not offer home reversion plans.
Are you looking to take out an equity release product?
At LV= we offer unbiased, FCA-approved advice that looks at the whole of the market, not just a selected panel of lenders. We’ll ensure that you get the best advice for your personal circumstances and based on the information you tell us. Try our equity release calculator today and start your journey.