Equity Release Calculator: What It Is and How to Use One
It is important to understand the equity release calculator before you start. This article will look at what an Equity Release Calculator is and how it can be used.
It also helps to know where your mortgage stands right now so that we can determine if refinancing could help reduce monthly payments or make them more affordable on your budget.
What’s an Equity Release Calculator?
An Equity Release Calculator is a financial tool that can help you calculate your equity release. The calculator considers the value of your home, how much you owe on it and what interest rate or monthly payment would be required to repay the loan for this purchase with no change in capital over time.
It also calculates an estimated amount of additional funds available after paying off debt if mortgage rates remain unchanged over the life of a loan.
The Equity Release Calculator is an adjunct to professional financial advice. It only represents a starting point for your research into equity release products. The calculator does not constitute any form of investment or offer to sell securities in the UK or anywhere else.
Things to Consider
- The calculator is available for the UK only.
- The calculator only calculates one scenario and does not consider other options or future equity release interest rates.
- The figures are calculated for a repayment mortgage product.
- The equity release calculations do not include the costs of any fees (including legal, valuation, administration) associated with releasing your home equity via an Equity Release product which may have to be met by you in addition to the cost of capital repayments over time; these will depend on your circumstances and requirements but typically range from £800 -£2500.
Do You Qualify?
- You must be aged 55 or over
- Your home is your main residence, and you intend to continue living in it for the rest of your life.
You are not borrowing money against more than 25% of its value at any one time, excluding an endowment mortgage with a guaranteed rate period that will cease on completion of that fixed term.
Equity Release Council has assessed your total assets (excluding your house) as worth less than £20,000.
The equity release calculator does not consider interest rates rising from their current low levels, so please make sure you discuss this potential risk with us if appropriate.
Why Is Equity Release a Priority?
Equity release is a way to access money from the value of your home.
It can be used for any purpose; however, common uses include:
- buying a car or replacing an existing vehicle;
- purchasing household goods such as furniture and appliances;
- paying off debts, including credit cards and loans, which have higher rates of interest than those on offer with the equity release plan.
What Are the Benefits of Equity Release?
Purchasing items using equity release may seem expensive when you consider that cash savings are not earning any return, but this could work out cheaper in the long term because these products will last longer.
Likewise, borrowing money at lower rates by releasing some equity on your house can also save you money over time.
Types of Equity Release Schemes
The two main types of equity release schemes available are lifetime mortgages and a home reversion plan.
Lifetime Mortgages: This is an equity release loan secured against your house up to its value. Your monthly payment will be the same as mortgage interest rates on offer, but when you die or move into residential care, any remaining debt would still have to be paid off by whoever buys your property in an auction sale – usually with the help of their life savings.
Home Reversion Plans: Home reversions work differently because these do not require any repayments until you die. Whatever you owe on the plan then is paid off by whoever buys your property and takes over responsibility for it – usually with help from their life savings, too.
The main thing to consider when deciding whether equity release could be a good option is how much cash do you need now (or soon) versus having enough money later for retirement or care homes?
Equity release can provide quick access to funds. Still, there are also risks involved depending on which type of scheme you choose – so make sure financial advice and independent research are taken into account before making any decisions.
- Do you need access to funds now but not in the future?
- Do you want or need a tax-free lump sum of cash, and is your property worth more than £500,000?
- Does equity release seem like an appropriate solution for your needs?
- Will it be affordable over time, or will there be monthly repayments too high on top of other living costs such as equity release mortgage and bills?
But wait, let me tell you something:
Consider all the equity release options available. Equity release isn’t always right for everyone, so do plenty of research before choosing which scheme might best suit your circumstances.
It’s worthwhile getting equity release advice from someone who specializes in these schemes, too – they’ll help confirm whether this type of borrowing can work out well for you.
Learn more about whether equity release is a good idea for you.
The fees for these plans range from 0.625% per annum with a repayment period of 25 years to over 15% of the cash amount released upfront, depending on how much you take out and your age.
RELEASE AMOUNT: Can be taken as one lump sum or in monthly repayments
You’ll own nothing if you have chosen to use it all – this is called ‘sinking fund’. If just part of the funds is used, then ownership will depend on what type of equity release scheme has been chosen; some schemes offer shared ownership options so that there’s always something left to pass onto heirs at death whilst others offer full interest in the property, equity release calculators are a good way to calculate your mortgage options.
Learn more about Equity Release Costs.
Who Should Use an Equity Release Calculator?
Equity release calculators are a good way to help you work out if equity release is for you.
The calculator can also provide an estimate of the monthly repayments that will be required as well as the length of time before your home may need to be sold and how much capital would then remain to fund future care costs or lifestyle changes.
You should use it if: You want more flexibility on when and how often you pay back your mortgage lender, meaning less disruption to family life; You have significant existing debts, which could make it difficult for you to meet ongoing living expenses now or at any point in the future; Your income isn’t sufficient enough initially for you.
It’ll then calculate how much of the property’s value will be released to provide a monthly income and what this would equate to payments over time.
The main benefit is that it can help people work out whether equity release is appropriate or not and work out which product suits their needs best.
Let me explain,
For example, suppose someone only requires enough money for a few months. In that case, they may want to consider an interest-only mortgage rather than releasing some capital from their home.
How Do You Calculate Equity Release?
You can calculate equity release with an online equity release calculator. Equity release calculators calculate the cash you could receive from your home, based on your circumstances and how much money you want to borrow (your loan limit).
What Percentage Can You Get on Equity Release?
The percentage that you can get will depend on your age and how much money you want to borrow. The younger you are, the more equity there is in your home and so you will receive a higher percentage of the value than an older person who has less equity in their home.
What Is the Maximum You Can Get on Equity Release?
Most people will get 90% of the value of their homes. However, if you have a partner who lives in your property and they don’t want to sell it (for example, if you retire and want to move closer to family), then you might only receive 75% of the equity in your home.
How Much Do You Pay Back with Equity Release?
How much you pay back is typically related to how much equity you release. You will usually have to pay an interest rate on the amount that you release, which does not change during the term of your deal.
If you’ve been considering releasing some of that equity to fund your retirement income, check out the Equity Release Calculator. The calculator will provide a rough estimate of the monthly payments based on different parameters like interest rates and repayment period length. It also outlines how much cash is needed upfront if you decide to take this route.