The word flexibility is so important when dealing with financial products and this is especially so with Equity Release schemes.
Flexibility simply gives you options, and when money is involved it's often the case that your financial situation of today is different from that of the future. So why sign yourself up to something that is 'inflexible' and can't bend or deviate with your needs?
In the past most Equity Release plans have been plagued by inflexibility. This in itself wouldn’t be bad over a few years but a typical Equity Release deal might last for a decade or more. So two new equity release plans by the Prudential and Just Retirement are therefore welcomed because they offer the all-important concept of flexibility.
What Exactly Is 'Flexibility' With Equity Release
- Basically it means that you don't have to draw down (release) all the money at once from the value of your property
- For example, with the Pru's scheme you take an initial lump sum minimum of £20,000 and can drawdown payments in the future of £5,000, up to an agreed limit
- Before this kind of flexibility people could only take a lump sum and were drawing down too much
- What made matters worse was than some unethical Equity Release firms advised clients the excess money should be invested, probably in products that paid them juicy commissions
- The flexibility angle will therefore combat many of these past problems
The Difference Between The 2 Equity Release Plans
The main different between what the 2 companies offer is the interest rate charged on the loan. Pru's rate at the time of writing was around 0.5% higher than Just Retirement's (6.45% v 5.99%)
Both interest rates are cheaper than most other ER plans being sold which also have zero flexibility. For this reason both of the these deals are probably the best on the market right now, but it's also a 'hot sector' so look for better deals over the coming year.
Obviously the charges and fees will vary between the two ER plans so make sure you study and compare them in detail. But the main focus on any financial deal where money is borrowed should be the interest rate.
Summary
In the Equity Release world not only is flexibility imperative, research is also so.
By their nature Equity Release plans are complex, and the worst thing that anyone can do is jump in without fully understanding what is being bought and what the downsides are. Therefore you must take professional advice as well as involving members of your family.
Remember Equity Release plans generally have horrible early repayment penalties, so once you sign a contract you're locked in perhaps for 10 or 20+ years.
Finally, if I were considering ER I’d start by having initial consultations with at least 3 professional advisors and then compare what they all propose. I’d pay special attention to not just the interest rate but all the costs and charges involved over the lifetime of the deal.
