WHAT’S AN ER CALCULATOR?
Glad you asked.
An equity release calculator will give you an indication of how much cash you can get from the home you own, which is your priority after all. You have to enter your age, the type of property you own, and the estimated value of the property. It will help you to see just how much money you can borrow. You’ll also know which scheme to go with that fits your financial needs. There are so many options and products to choose from!
If you’re looking to unlock some tax-free cash, this is an attractive solution. If you’re 55 or older and it’s your priority, you can apply now and get value from your property. In exchange, you would take on a long-term mortgage. You will then have to repay this using your home once you have passed on or need frail care.
THINGS TO CONSIDER
- It will reduce your inheritance which is a priority for your heirs.
- Your tax status and welfare options might be affected.
- You might look at instead moving to a smaller property.
- The company you deal with will add compound interest to the amount you borrow.
- It’s a big commitment, so if you want to end the loan sooner, you might have to pay enormous charges for this option.
- Chat to a financial advisor before you make any priority financial decisions.
DO YOU QUALIFY?
To apply, you will need the following:
- Be 55 years or older (for joint applications, both applicants must be over 55).
- You must own a home in the UK (excludes Isle of Man and the Channel Islands) worth £70,000 or more.
- Be in a position to borrow £15,000 at least.
- You must live on the property. It must also be your primary residence, and it cannot be unoccupied for longer than six months.
- You can only have a small mortgage on the property and will have to pay off outstanding debt from the money you receive. So it is better to be mortgage-free before you begin this process.
The good news is that once you have used a calculator, you can then see what amount of equity you can get from your property. Equity Release schemes depend on various items such as how old you are, the value of your property, and the type of property you own.
If you’re looking for what percentage you can get, an ER calculator is the best way of finding this out. Then you’ll be able to choose the best equity release products.
WHY IS EQUITY RELEASE A PRIORITY?
There are various reasons why you might need this, including:
- You might need home improvements for your property.
- The property might need emergency repairs, a priority to providers.
- You might be looking to increase your retirement income due to inflation.
- The mortgage on your property might be increasing, and you might need to top it up.
- You might need a cash injection for a frail care centre.
- A substantial medical cost might come up.
- You might need to help your grandchildren with their academic costs.
TYPES OF EQUITY RELEASE SCHEMES
There are a variety of mortgages to choose from:
- A flexible lifelong mortgage – you would select this scheme if you want to pay nothing till you pass on or have to move into long term care. With this option, you can get a lump sum or a series of lump sums.
- A lifetime mortgage with an optional option – this is when you would instead opt for either a lump sum or various lump sums and only pay off some of the interest owing.
- A lifetime mortgage with an income option – you would select this if you’re looking to have a regular income paid for a certain amount of time, instead of a lump sum option.
- Speak to a financial advisor to see if this is the right priority decision for you
- Ensure the company you deal with is a registered member of the Equity Release Council ¹, which is a trade body that sets the standards for the providers of mortgages.
- See if you could instead look at taking on a smaller loan for your needs at the moment.
- You can also look at other solutions, such as moving to a property that is smaller or moving to a location where property prices are lower.
There are other expenses you will need to budget for:
- Application fee – could be about £599 added to that is a transfer fee of around £30 to arrange the transfer of your money to your solicitor on completion. It’s usually a priority.
- Fees for Solicitors – Fees for Solicitors that deal in Packages can run you anything from £650 or more. It is always best to see which one can offer you the best deal.
- Interest rates for the lifetime of mortgage – these are calculated on the value of the mortgage and are fixed. Unpaid interest is added each month to the loan. It will result in extra interest on the due part, which results in compound interest. You usually pay this when you have passed on. ²
- A word of caution: some companies might also charge you for advice and a valuation fee on your property. Some make it their priority.
Simply multiply the LTV (loan-to-value ratio) by your property’s value. The amount you seen is the maximum you can release from your property.
The maximum amount you can borrow is up to 55% of the value of your property, depending on your priority. To determine the exact amount, it’s advised to use an ER calculator. Another calculation that might give you a rough idea is this:
Current appraised value ($500,000) – Mortgage balance ($240,000) = Home equity ($260,000)
Depending on your age, financial priority and medical health, you can get from 20% to 30% of the value of your home.
The plan has an interest rate calculated on a fixed rate of compound interest. Interest is calculated each day but added to the loan amount monthly or yearly.
Taking on an equity release mortgage is a huge decision. Using an equity release calculator can certainly help you decide whether this is the right option for you at the time. It can undoubtedly unlock vast amounts of capital for you, which you can use for emergency payments or medical needs, or even future retirement capital.
Something to think about is that you will have to pay this back not only in interest but eventually through your property. It will affect your inheritance and possibly your tax affairs.
Using an equity release calculator can undoubtedly help you work out what your options are if you need a massive capital injection in times of need. It would then be the best option for you.
Before you make the decision, it’s always best to speak to your financial advisor and then decide on the right path. The decision you make could affect not only you but also your family.