Fees and ongoing obligations
Understanding all the costs involved is crucial before deciding if equity release is suitable for you. These costs include one-off set-up fees, ongoing obligations, and other potential financial impacts you need to consider.
One-off set-up costs
These are the initial fees payable to arrange an equity release scheme. Most are paid during the application process or upon completion.
- Financial advice fee: It is a regulatory requirement to receive professional advice. This fee pays for the adviser's time to research the market and recommend a suitable plan. It can be a flat fee or a percentage of the loan amount and is often payable on completion.
- Lender's arrangement/application fee: Some lenders charge a fee to set up the plan. This can sometimes be added to the loan, meaning you will accrue interest on it. Many providers offer plans with no arrangement fee.
- Valuation fee: The lender needs an independent valuation of your property to determine how much you can release. Some lenders cover this cost as part of their product offer.
- Legal fees: You are required to receive independent legal advice to ensure you understand the contract. These fees cover the solicitor's work in handling the legal aspects of the transaction.
- Completion fee/telegraphic transfer fee: This is a small administrative charge by the solicitors for sending the money to you or your previous mortgage lender.
When fees are paid
Fees are typically due at different stages:
- At application: Some lenders may require an application fee upfront.
- At offer: A valuation fee might be payable once you have accepted an offer.
- At completion: The majority of costs, including advice and legal fees, are usually paid when the plan completes, often by being deducted directly from the funds you release.
Ongoing costs
While you may not have mandatory monthly repayments, you are still responsible for the ongoing running costs of your home.
- Interest (Lifetime Mortgages): For most lifetime mortgages, interest "rolls up" or compounds on the loan. This is the primary ongoing cost, though it is only paid back when the plan ends. Some plans allow you to make voluntary payments to service some or all of the interest, reducing the overall cost.
- Property maintenance: You must keep your property in a good state of repair as per the terms of your agreement.
- Buildings insurance: You are required to maintain adequate buildings insurance on your property throughout the life of the plan.
- Ground rent/service charges: If your property is a leasehold, you must continue to pay any ground rent or service charges due.
Potential indirect costs and charges
Beyond the standard fees, there are other significant financial considerations.
- Impact on means-tested benefits: Receiving a cash lump sum can affect your eligibility for benefits such as Pension Credit or Council Tax Support.
- Early Repayment Charges (ERCs): If you decide to repay your plan early, especially in the first several years, you could face substantial charges. These are typically a percentage of the amount repaid and reduce over time.
- Moving home costs: While most plans are portable, moving to a property that does not meet your lender's criteria could force you to repay the loan and incur an ERC.
- Drawdown withdrawal fees: Most drawdown plans do not charge for taking funds from your reserve, but it is important to check the terms of your specific plan.
How to help control the costs
- Take only what you need: The less you borrow, the lower the overall interest cost will be.
- Consider a Drawdown Plan: If you don’t need all the money at once, a drawdown lifetime mortgage means you only accrue interest on the funds you have actually taken.
- Make voluntary repayments: If your plan allows, paying off some of the interest or capital can significantly reduce the impact of compounding.
- Shop around: Your HCF Partnership adviser will compare plans from different lenders, some of whom may offer deals with no application fees or free valuations.
- Check the ERC Structure: Understand how early repayment charges are calculated and for how long they apply. Look for plans with fixed, defined ERCs.
Before proceeding, it is vital to get regulated financial advice to receive a personalised illustration detailing all the specific costs and risks for your circumstances.
EQUITY RELEASE (INCLUDING LIFETIME MORTGAGES AND HOME REVERSION PLANS) WILL REDUCE THE VALUE OF YOUR ESTATE AND CAN AFFECT YOUR ELIGIBILITY FOR MEANS‑TESTED BENEFITS.
Types of Equity Release
Lifetime Mortgage
Drawdown Lifetime Mortgage
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