Equity Release Compound Interest Calculator

Equity release products have seen a great increase in popularity in the retirement market of today. This is due in the most part to the fact that people over fifty-five can have difficulty obtaining conventional finance because of their age and income restrictions. Equity release products have been specifically designed to allow this age group to borrow money secured on their own property. Unlike a conventional repayment loan or mortgage, usually there are no monthly repayments to be made by the home owner which could compromise their fixed income. Therefore, equity release represents a popular way which allows retired people to borrow cash tax free. However, the equity release market can be a little more complex; so many companies now offer compound interest calculator tools to enable people to develop a clearer picture of the financial implications of the loan.

How does the interest work on equity release?

The main reason why compound interest calculator tools are available on such websites because the structure of equity release schemes are different to conventional mortgages. Whereas on a conventional repayment mortgage, each monthly payment is paying off the interest and a portion of the capital of the loan, equity release mortgages work differently. Since there are no monthly repayments, the interest is accrued and added to the balance of the equity release loan annually, rather than being paid off. As this happens the interest compounds and the balance of the loan increases. The balance of loan only becomes due when the property is sold because the home owner has died or moved in to a care facility for the remainder of their life. The funds from the property sale are used to pay off the balance of the loan and any remaining monies are then distributed to the beneficiaries as part of the estate of the deceased. 

Why is a compound interest calculator needed?

On the face of the figures, equity release may seem very costly. However, the compound interest calculator can allow the home owner to understand the differences between the structure of repayment of an equity release scheme and a conventional mortgage. Without knowing how the interest is compounded and how this affects the loan balance in the long term, home owners may be a little confused as to the benefits they would receive. Of course, your equity release broker will provide key facts documentation including a list provided by the specific lender of the year on year balance which would accrue on the equity release scheme. This is calculated by the lender using their compound interest calculator programs. However, for initial enquiries, the calculator can provide some reassurance as to whether equity release would provide a long term solution for the person's financial requirements.

How the calculator works

The calculator provides the details of the financial implications of the equity release scheme. For most people the first year interest is easy to understand as there are no additional sums compounded onto the loan. However, at the end of the next year, the interest rate is calculated based on the balance available last year which included interest. This can appear to be simply interest being added to interest unless it is explained by a calculator. However, the calculator can supply details of the interest that would be paid off each year and the impact it would have on the balance. These figures will provide a figure of the anticipated balance at any time in the loan. 

Other benefits of a compound interest calculator

The compound interest calculator which is available online can also be helpful in explaining the implications of equity release to your family. Obviously, this type of financing will have implications for your beneficiaries and will reduce the value of your estate. The figures can be used to explain how the equity release will affect the balance of the estate and allow the home owner to complete more comprehensive inheritance planning. The online calculators are also helpful to discover the implications of the different interest rates offered on the various plans. This can help to make an informed decision about the long term costs and whether it is beneficial to opt for one specific scheme over another. 

If you are considering equity release, it can be important to seek out a compound interest calculator. This can provide actual figures for the implications of different levels of lump sum and ensure that you are aware of whether it would best suit your requirements to obtain the maximum possible release. This will help you to make a more informed choice about different equity release products and schemes.