When considering equity release, many people become a little overwhelmed by the different types of schemes and plans available. There is the choice of an interest only lifetime mortgage, home reversion plans, drawdown mortgages to name but a few. However, each individual scheme or plan will have slightly different qualification criteria, restrictions, limitations and equity release amounts. This can make it very difficult to compare the different schemes and assess which is best suited to your needs. However, there are a number of online equity release calculators which can assist you.
Understanding the Different Schemes
When using an equity release calculator, you will be supplied with a number of options which suit your circumstances and needs. However, it is important to understand the differences between the different types of schemes and plans. Most equity release products can be sorted into one of four categories:
Interest Only Lifetime Mortgage
This is similar to a conventional interest only mortgage, but with an interest only lifetime mortgage, there is no monthly repayment. The interest accrues and is compounded on to the balance on an annual basis. The loan for the release sum does not require repayment until the property is sold upon your death or you moving into a care facility for the long term.
Drawdown Lifetime Mortgage
This is very similar to an interest only lifetime mortgage. The principle of repayment is exactly the same. However, the primary difference is in how you receive the equity release sum. Unlike the interest only lifetime mortgage, where you may receive a lump sum, monthly income or both, with a drawdown lifetime mortgage, you are given a drawdown facility. This has a pre-set limit but it enables you to draw down sums of money as and when you require them. This is beneficial since you only begin to pay interest on the money as you draw it down. It can provide some financial security in the event of unforeseen circumstances and can be beneficial for those people who would lose their eligibility for state benefits and assistance if they had a large sum of money sat in their bank account.
These plans are designed to provide enhanced packages for those with a history of poor health or even a terminal illness. They utilise a lifetime mortgage or other scheme in principle, but they offer a greater amount of equity release based on the compromised life expectancy of the applicant.
Home Reversion Plans
These plans offer the applicant the option to sell all or part of their home to the home reversion company. They still retain the right to occupy the property for the remainder of their lifetime, but they receive a lump sum and know exactly what proportion of the value of their home has been used.
The Benefits of Using an Equity Release Calculator
The equity release calculator will assess your circumstances to determine whether you meet the criteria for the different products and schemes. This has a number of benefits, including:
• A quick response to confirm whether you would be eligible for equity release. This is affected by the age of the parties and amount of equity available in the home. Some people are unaware that equity release is based on the age of the youngest applicant in joint applications. This would mean that although one party may be fifty-eight and eligible if their spouse is only fifty-four equity release would not yet be possible.
• A calculation of the amount of equity available in your property. This is based on the current market value of your property less any outstanding existing mortgage.
• The provision of an equity release maximum sum, which can enable you to determine if equity release is a feasible option for you.
• The details of schemes which would appear best suited to your circumstances. This can enable you to compare and contrast the different interest rates and terms imposed by the different interest only lifetime mortgage schemes.
• Examples of other plans. Some of the more in-depth calculators will offer details on other plans, such as enhanced packages or home reversion schemes which may represent a better deal for you.
• Different results based on different criteria. This can enable home owners to explore whether they would be better to postpone their application. For example, for someone aged fifty-nine, they may obtain a better deal if they wait until they have reached their sixtieth birthday.
If you are interested in an interest only lifetime mortgage or any other form of equity release, it is important to fully assess your options. An equity release calculator can provide an excellent first step in this manner, but it should not replace the professional advice of a specialist equity release adviser.
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