Byline: LIZ PHILLIPS
THE cost of boosting your income in retirement by releasing equity in your home is tumbling as competition hots up.
This week Prudential and new lender Just Retirement launched flexible lifetime mortgages and Northern Rock slashed its rate in response.
It's now possible to get an equity release mortgage for around 6 pc - a third cheaper than anything available five years ago.
Lifetime mortgages are available to homeowners aged 60 or over. You take out a loan on your home based on a percentage of its value. The younger you are, the lower the percentage. But, unlike a normal mortgage, you don't make any repayments.
Instead the interest rolls up and it is only repaid once you die or move into long-term care.
All the major lenders belong to Safe Home Income Plans (Ship) which means they guarantee that you will never have to repay more than the sale price of your home and you are free to move home.
One of the criticisms of lifetime mortgages has been that some homeowners are taking out a larger lump sum than they need at the time and investing part of it, earning a lower rate of interest than they are paying on the mortgage.
But with the latest lifetime mortgages you can withdraw equity from your home in stages up to a maximum amount agreed at the outset, which saves thousands in interest over the years.
These drawdown schemes used to have higher interest rates than single lump sum arrangements and charged higher arrangement fees, but now the costs are similar to standard mortgages.
Prudential's Property Value Release Plan has a fixed rate of 6.45 pc and an arrangement fee of [pounds sterling]595 with free valuations and surveys. The minimum lump sum you can take initially is [pounds sterling]20,000 but you can draw out sums of [pounds sterling]5,000 or more in the future for only [pounds sterling]90.
Just Retirement's lifetime mortgage is similar but its fixed interest rate is 5.99 pc with a [pounds sterling]500 arrangement fee.
You have to pay for your survey and valuation, but the cost is refunded on completion.
Northern Rock has just dropped its rate to 5.89 pc.
You can take a lump sum or draw a set amount monthly. …