When considering all the various equity release costs options you have available to you, it is easy to lose sight of some of the costs that could be incurred. Before looking at those costs, though, you must determine what is an equity release and what is not. The difference between an equity release loan and a line of credit is that the former does not restrict the usage of the money. You can use the loan as and when you want as long as you meet the requirements laid down by the lending company.
The initial costs that you have to pay for accessing your equity depends largely on the product/ scheme you choose and your chosen financial company. Let s face it; not everyone is lucky enough to find an equity release provider who will provide them with a worthwhile product/ scheme. Therefore, the initial costs incurred for borrowing a loan or line of credit are not always hidden. The question then is: what are these equity release costs?
There are three main types of fees associated with an equity release; mortgage brokers’ fees, application fees, and legal fees. These fees can easily run into thousands of pounds, if not properly calculated and are therefore worth exploring at length. However, it is vital to understand what these fees are for; otherwise, it might confuse you even more about taking out the loan or credit.
Firstly, you will have to pay for an initial consultation with a mortgage broker. This will be an examination of your current circumstances and you will be under a lot of pressure to decide whether to go ahead with the loan. Without the correct information, you will be unable to arrive at an informed decision. In addition to this, you will be charged a commission fee from the mortgage broker for their service. Although it would be advisable to avoid the high fees charged by mortgage brokers, they do represent a very important part of the process and you cannot blame a lender for wanting to keep their costs down.
The second type of fee you will have to pay out of pocket is for the appraisal process. You will usually have to supply a letter of recommendation from a previous landlord or previous tenant which will give your potential new lender an indication of your suitability as a borrower. Your adviser will then carry out this appraisal for a fee, and it is essential that you fully understand the implications of the valuation. As they are the experts, they will usually know which aspects of the property are less valuable (in terms of equity) and which ones are more valuable (in terms of equity). However, if they do not include any recommendations, ask them why not and whether they think it is better to be vague on this point and leave it to your professional advisor to decide for you.
Lastly, there will be a charge for the recording of the mortgage transfer onto your property’s balance sheet. This may not seem all that vital, but if you are being remortgaged into a lower rate of interest, or your income is lower than your existing mortgage, you might want to look at how you can make up the difference in the recording. Mortgage advisors will normally agree to this charge, but it is worth asking them for a quote. Ask if there are alternative recording options available to you which would keep your costs down. You could for instance, choose to input the data directly into your balance sheet using a computer program. In addition to costing you nothing in terms of recording charges, you might actually save money by reducing the number of entries you make into your mortgage books.