An equity release calculator provides a few answers to consumers looking to take out an equity release product. To learn the key equity release calculator messages you have to understand how the calculator works in the first place. You also need to understand what equity release is and who it is for.
Release of Equity
An equity release allows you to tap into money that is currently tied up in property. You spent money to buy the house, most likely with a mortgage such as a 25 year fixed loan. You reached a point when this was paid off, so now you have the entire value of that home as potential equity to release.
For example, if the home is valued at £200,000 and you do not have a loan on the property already, then you have the aforementioned amount as the equity you can release from the property. Someone who is under 55 may or may not have a mortgage paid off in full, in which case the equity to be released would be the current market value minus the mortgage amount.
A person aged over 55 is heading into retirement and will want to have the home paid off, which may be one reason to downsize or take retirement funds to pay it off. If this is the case, then later on an equity release like a lifetime mortgage might be necessary to live a more comfortable retirement.
Basically, if you want to release equity, you need to calculate the potential amount you can actually get.
Key Release of Equity Calculations
Going on the premise of equity release for over 55s, thus lifetime mortgages, the amount you can release is called the loan to value percentage. This value is based on two factors: age and current property value.
Age is necessary because it determines life expectancy. The premise behind equity release at this age is for the loan to be repaid upon your death where any capital sum plus compounded interest has to be paid back. As you do not repay it while you are alive unless you decide to sell the home, only a percentage of the home can be given. This allows for the compounding interest to add up without the loan turning into a negative equity situation.
The value given in the key equity release calculator is going to increase as age increases. A person 65 years of age can obtain 30% of their property value in a lifetime mortgage for a maximum lump sum. A person 90 years old can obtain 52% loan to value percentage as a maximum amount. These two figures are based on Aviva products, so other companies may offer more or less than this.
Key Factors to Continue
The message here is that you obtain a value of tax free cash you could potentially release from your home. The amount quoted is a guide to help you determine if it is enough, making it worth talking to an independent broker.
As it is an estimate based on the property value you assume your home has, you have to double check the calculator’s total with a broker. They can also look at other products to see if there is something better offering a higher amount or a lower interest rate for you.
Most homeowners do not know the exact value of their property. This is due to an old estimate from when they took out a loan in the first place or bought the home. With values changing, unless you have an estate agent or surveyor come out to look at the property, you are going off projected comparable sales you found on Zoopla.co.uk or other similar websites.
Overall you have an estimate to work from. You already know you will receive tax free cash, so all that is left is to determine from calculations if one product like enhanced, standard, or home reversion is the best option for you based on the estimated percentage you can receive in an equity release.
Taking the Message
Taking the message and using it is the best way to obtain an equity release you feel comfortable with. You never have to take the maximum sum the calculator gives you. This is another key equity release calculator message to take with you. You should only take what you need and not the largest amount as a means of keeping the compounding interest down. This will save equity for your beneficiaries at the end of your life rather than taking all their inheritance as the full amount could do.