Mortgages  

Beware early repayment charges on equity release

Stuart Wilson

Stuart Wilson

If the client is unsure, then the adviser will then need to talk them through the pros and cons of gilt vs. fixed ERCs. 

They also need to discuss with them their risk appetite as some people would far rather know that if they need to redeem their policy in year eight they will pay x thousand pounds rather than needing to consult the gilt markets. 

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Others may be more comfortable with this uncertainty as they do not believe they are likely to move and products with gilt-linked ERCs can have slightly lower interest rates.

Although the rate of a lifetime mortgage can often be the main focus for borrowers who are considering taking out a loan, it is important that they do not overlook the impact of these additional product features.

While the interest applied to their loan will undoubtedly be a key part of their decision process, the features attached to the plan can have a more significant impact on the suitability of the loan and the long-term financial security it provides.

Advisers therefore have a critical role to play in helping borrowers understand the importance of features like ERCs, downsizing protection, and inheritance guarantees.

Equity release lenders have been working hard to provide customers with greater choice and flexibility through the addition of innovative product features, and advisers are responsible for ensuring borrowers understand how such features can support them throughout the duration of their loan.

Early repayment charging structures have a long-term role to play in determining which types of equity release loan are best suited to meet customers’ changing needs during retirement, making it vital that advisers outline to customers the implications of each type of product.

Ultimately, providing specialist advice will be key to ensuring better outcomes are achieved for older customers, both now and in the future.

Stuart Wilson is corporate marketing director of More2Life