For many retired people, the prospect of managing on their pension with little possibility for financial help or an additional income stream is a daunting one. However, there have been a number of developments in the financial services industry. Retired home owners now have a number of financial products which have been specifically designed for their age group. This includes equity release. Equity release allows home owners aged fifty-five and over to gain access to a maximum release of equity which has built up in their homes. This equity release can take the form of a tax free lump sum or a fixed monthly income for the remainder of their lives.
How Equity Release Works
Equity release schemes allow retired home owners to gain access to the equity which is tied up in their property. This is the current market value of the home, less any mortgage or other form of loan secured on it. Before equity release was developed, the only way to release this equity was for home owners to sell their property and purchase a smaller and less expensive one. However, equity release allows the home owner to retain the right to live in their home until their death or they move into a facility for long term care.
Unlike a conventional mortgage, equity release does not require monthly repayments, so it will have no negative impact on the disposable income of the home owner. This means that the home owner can gain access to a lump sum or additional monthly income without needing to move home. The interest from the equity release is accumulated on to the balance of the loan and only becomes due for repayment when the property is sold after death or permanent move into long term care. At this stage, the property is sold and after the balance of the loan has been repaid, any remaining equity is passed on to the beneficiaries through the person's estate.
Calculating the Maximum Release of Equity
There are strict rules in place governing the maximum release of equity. This is to ensure that the loan will not exceed the value of the property. There are assurances in place through financial regulations, that no equity release client will leave a negative balance on their home and create a debt for their estate. For this reason there are a number of factors which are needed to calculate the maximum release of equity. These include:
• Age of applicant: In the cases of joint applications, the age of the youngest party is used. This is needed to estimate the potential duration of the loan. People who are aged fifty-five will have a much lower equity release figure than those who are older.
• Value of property: This in combination with any outstanding mortgage balance is used to determine if there is sufficient equity in the property for release.
• Health status: Some providers will offer enhanced terms and a greater maximum release of equity to those who are in poorer health and anticipated to require a shorter duration of term for their equity release.
Online Equity Release Calculators
There are a number of online calculators which can assist in determining the maximum release of equity. The best calculator we have found was on EquityReleaseCalculator.net. These online tools are programmed to collate the information you supply into a calculation formula and provide a maximum release of equity figure. This can enable people to obtain a clear picture of whether this sum would be sufficient for their requirements. This can provide assurance that it is worthwhile proceeding with an application, or prevent people who would not qualify for equity release from wasting their time researching the options. The calculators are widely available and free to use but they will only make their calculations based on the information you provide. It is important to ensure that the information you enter into the calculator is as accurate as possible. This will help to make sure that the maximum release of equity figure you receive is accurate and can be relied upon when moving forward.
If you are considering equity release, it is important to first assess what the maximum release of equity would be for your property and circumstances. It is worthwhile using an online calculator to determine this amount and you can then assess whether this is sufficient for your plans and requirements. Obtaining this figure can help you to make an informed decision as to whether or not it is feasible to move forward to speak to a professional adviser and start the application process.
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