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Equity Release

Buying Tactics - Tips & Tricks

Seek out Flexibility

No one knows what tomorrow will bring let alone a few years down the line. It is important therefore, especially when dealing with financial matters, to seek out flexibility.

Some Equity Release plans are inflexible, such as Roll Up mortgages that allow you only to take a cash lump sum when the deal is signed. But a Drawdown mortgage gives you the option to withdraw an agreed sum on signing the mortgage and then withdraw any further amounts when you wish.

This has certain advantages -

  1. You won't have access to all the money at once, meaning there's no chance of people recklessly spending (cruises, new cars etc) - Sadly, many Equity Release providers promote this type of lifestyle spending

  2. Interest is only charged on money that is withdrawn
Flexibility and Early Repayment charges

Another important point is to try to seek out Equity Release deals that offer small or discounted early repayment penalties.

If you sign up for a deal today but want to cancel it in 3 years there will be an early redemption fee to be paid. These are often be expensive and sometimes so high that you are effectively locked into the deal forever - almost a definition of the word inflexible.

Look hard at these types of charges but don't be too concerned if they're initially high but are reduced within a reasonable amount of time. For example -

  • A lender charges 5% (of the total value of the loan) to get out of the deal in year 1
  • This then drops by 1% per year
  • So in year 6 there's either nothing to pay or a just a small admin cost

Summary - Paying an early redemption fee is fine for the first 5 years. But try to steer clear of any Equity Release plan that tries to tie you in (financially) for longer.

Interest Rates

The best deals are normally always the ones with the lowest interest rates.

It's not uncommon for one provider to charge say 7% on an equity release deal and another to charge 5%. The 2% difference can often mean an extra £1,000 or more in savings per year, and even more if the loan is larger.

Research all fees and charges

A classic marketing trick with many personal finance products is to make a big song and dance about something, perhaps a competitive interest rate but then claw back profits with a variety of (often hidden) charges and fees.

You are therefore strongly advised to put a lot of effort into breaking down the charges and fees and any other costs relating to several different Equity Release deals. Then and only then can you start to have a good idea of which deals are competitive and which should be avoided.

Fees and charges are where the banks and finance firms love to try to trap us. It is no real surprise they can do this because many customers don't fully research what they're buying and if there are any catches. Don't let this happen to you especially with something so important as an Equity Release deal.

Shop Around

If I were going to sign up to an Equity Release deal I'd spend plenty of time shopping around.

I'd visit at least 2 or 3 separate Equity Release firms for an initial chat as well as 2 or more banks or building societies or insurance companies that specialise in selling the product.

Negotiation Tip

Many salesman can be pushy, determined and play all sorts of marketing/selling tricks on us. This often makes it hard for some people to say no.

I have always found that having an imaginary 'advisor', perhaps a family member or close friend, helps in these situations.

Then, it's easy to say no because you tell the sales people that all potential plans and ideas have to be run past this person who of course they will never meet or get to speak to.

Take Independent Legal Advice

Although you'll be advised by a specialist Equity Release adviser or company, you're still going to have to take independent legal advice.

Yes, this will cost money but as you're dealing with your most important asset it's important that you're advised by a professional who has no connections to the people selling the equity release plans.

It is interesting to note when you read about people who've had problems with equity release in the past that many of them failed to take and pay for proper independent legal advice. Although I'm a fan of saving money wherever possible if I were considering equity release I wouldn't do so without taking proper advice.

LearnMoney.co.uk comment:

I know I've mentioned it many times before on this page but it's so important that I have to say it again -

  • The more research and time spent looking into Equity Release
  • The better chance you'll have of finding the right deal and at the right price

Sadly, the less research you do, the less you understand what you're really buying and how the product works, the more chance you've got in buying the wrong product at the wrong price.

  • So be smart and take your time
  • Have a healthy dose of scepticism in relation to all advisers and people who want to sell you the product, and
  • Above all before you sign anything take proper independent legal advice

FREE Equity Release Guide

  • This LearnMoney guide offers a simple 5 Step process outlining exactly how to properly research the Equity Release market

  • It make sure you ask the right questions and get proper answers

  • Concentrates on the all-important costs and flexibility of the different Equity Release schemes

  • More details and to download your FREE copy

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