Personal finance is a very popular area of financial services. There are numerous products and services available including equity release, which enable consumers to raise funds for a particular purchase, planning for the future or supplementing their lifestyle. The financial service industry is filled with service providers including accountants, brokers and financial advisers who are able to facilitate this type of finance.
These products are regulated by the Financial Services Authority and designed to be beneficial through the use of compound interest. Compound interest is commonly used in a number of financial products from savings accounts through to equity release schemes, so it is important to understand the implications compound interest will have on your particular financial arrangement. An online compound interest calculator can be the easiest way to work this out.
Compound interest is an arrangement whereby the interest is added on to the main principle of a loan or deposit. Once the interest is added, the balance will increase and attract further interest. Compound interest is especially popular with savings bonds where no withdrawals are permitted leaving the interest to compound and increase the balance significantly. Compound interest is also one of the popular features of equity release schemes. These schemes are designed for the over fifty-fives and are similar to conventional mortgages but they require no monthly repayments. Instead the interest for the loan compounds on to the loan balance. The entire balance is only due for repayment when the home owner has died and their property is then sold.
Compound interest can be a little complex to calculate. It is usually compounded annually, so the first year is fairly simple to work out. However, as the years pass by, more and more interest is compounded, so it can be difficult to work out. Many people use an online compound interest calculator, which has been pre-programmed to show the financial implications of using this popular method of interest.
With any financial product which uses compound interest, your broker or financial adviser will provide a key facts document which illustrates how the compound interest will affect the balance over the years of the arrangement. However, an online compound interest calculator can provide a number of benefits for consumers. These include:
• Taking control: Even if you use professional service providers such as accountants and financial advisers, it is a good idea to take control of your financial products and statements to check whether you are happy with them. An online compound interest calculator can provide the opportunity to assess your potential financial product such as equity release and see the impact the compound interest would have at different rates on the balance. It is only by fully understanding these effects will you be able to make an informed decision about whether the product is right for you.
• Evaluate trends: An online compound interest calculator can also be useful in evaluating trends in your portfolio. You will be able to see how the interest rates are moving and how this will affect your current investments or borrowing. This will enable you to have a greater degree of protection for your portfolio and ensure that you have maximum liquidity in the future.
• Assess your estate: With certain financial products such as equity release, compound interest can have an impact on the amount of funds which would be available for your estate. By using an online calculator, you will be able to see the potential impact a scheme will have on your estate and enable you to perform more optimised inheritance planning. This can minimise the amount of inheritance tax which would need to be paid in the event of your death by your beneficiaries.
Compound interest is an extremely popular feature of a number of financial products and services. It is essential that you understand the concept and how it can affect the balance of your savings or loans. Those with little understanding of compound interest may see schemes such as equity release as overly expensive; but it is only with understanding of the concept of compound interest can you truly appreciate the advantages and disadvantages of the product. An online compound interest calculator can prove a useful tool for this. There is no need to be a maths genius, you simply enter in the basic details of the product and the calculator will produce details for the effects of compound interest year on year. This will help you to have all the information necessary to proceed forward with a financial product in confidence that it is the right choice for you.
When considering equity release, one of the primary deciding factors for most people is how much equity could be released using a lifetime mortgage. There are a number of free online calculator tools which allow home owners to gain additional information about the equity release schemes which may be best suited to their needs. Many will advise the minimum or maximum amount of equity which could potentially be released, to allow home owners the information to make an informed choice.
The amount of equity release depends on a number of factors. The first and most obvious is the amount of equity in the home. This is calculated by deducting the balance of any mortgage or secured loans from the current market value of the property. Once this has been determined, there will be confirmation whether there is sufficient equity for the minimum or maximum amount of equity release needed.
However, the personal details of the applicant also need to be factored into the calculations. This is because unlike conventional repayment mortgage products, a lifetime mortgage has no fixed term. The provider will need to establish the estimated duration of the mortgage by calculating your expected life expectancy. This is done using factors including your age, gender and any medical history. These factors are entered into a formula in a similar way to obtaining a life insurance premium. The expected lifespan of the applicant will determine how long the plan will run for and the restrictions it will place on the minimum or maximum amount of equity which can be released. As a general rule of thumb, the older the applicant, the greater percentage of equity that can be released through the lifetime mortgage.
Some more in-depth calculators will also ask questions which pertain to your health and history of illness. This is to check whether you would qualify for an enhanced lifetime mortgage. These are more specialised offers which provide a higher equity release amount based on the fact that you have an impaired estimated life expectancy. With an enhanced lifetime mortgage, a person with a serious illness or medical condition will be able to release a much higher percentage of equity when compared with someone in perfect health of the same age.
The calculators will generally provide a maximum possible amount of equity release. However, it may not be in your best interests to opt for a minimum or maximum amount of equity release and choose a figure in between. This is because the interest on lifetime mortgages is compounded on to the balance of the loan. With no regular monthly payments on most lifetime mortgage plans, this can mean that the balance of the loan will double approximately every eleven years. Depending on your plans for the equity release sum, it may not be cost effective to take the maximum sum.
There are also other financial implications of taking the minimum or maximum amount of equity release. A minimum lump sum may prove to be insufficient should any unforeseen eventualities occur, while the maximum amount may prevent you claiming means tested state benefits which you should be eligible for.
In cases such as these, you may need to consider a drawdown lifetime mortgage. This creates a facility for drawing down cash rather than providing an all at once lump sum. You can draw down cash as and when you need it and will only pay interest on the money which has already been withdrawn. Many online calculators will include options for drawdown lifetime mortgages, which may provide a more attractive deal for your circumstances.
Although the calculators are very reliable, it is worth remembering that these calculators work purely on a mathematical formula. They have no tools for checking the market value of your property or the accuracy of the information you provide. Your minimum or maximum amount of equity release will depend greatly on the accuracy of the information which has been imputed. It is definitely worth taking the time to ensure the accuracy of your data including up to date mortgage balances and using online tools from local newspapers and estate agency websites to determine a more precise valuation figure for your home. This will ensure that you have an accurate figure to work with; which can be relied upon when moving forward. This will also provide assurance that you have full information and enable you to proceed with confidence.
Gone are the days when people had huge challenges in making financial decisions due to lack of information or knowledge. Today, thanks to technology, everybody can access all the information they want on the internet. They can learn, get entertained, and even do business using Information Technology. The retired population is even evaluating their financial future using this same technology, owing to a number of websites dedicating themselves to availing relevant support on finances. Simply click here to find out why.
Equity release has grown to become a household name today amongst retirees and other employees nearing retirement. Confusion surrounds which are the best equity plans and other financial options which have made a number of people think twice about the eventual steps to take. Resources have for long remained scarce and unreliable but today, that has changed significantly. For comparisons of the most suitable equity release schemes, click here.
After having worked all those years saving and investing in valuable property, the last thing you want is financial stress and hardship. This is why it is always advisable to get professional assistance about your next plan of action, more so when it comes to making plans for your future. As much as you’d want your finances to remain your own secret, it does no harm at all to learn a thing or two about what is best for you in relation to your current and future financial status.
These websites highlighting equity release plans have comprehensive details about when to consider equity release, how to make decisions, information on each plan, advantages and disadvantages, and also information on where to get mortgage information among other details. Previously, people have failed in their planning due to failed strategies. This happens when one does not heed advice from experts, or does not seek it at all.
If you consider seeking advice as letting out your secrets, then consider looking for information online by comparing all plans as highlighted by experts. You know your status better than any other person, but there will always be a highlighted scenario that replicates your case. The decision about the plan to subscribe to is entirely yours, after you have all the information about available options.
The Internet is a great place to start gathering information. To help point you in the direction you need to go a couple of things will be mentioned.
A lifetime mortgage is a loan repaid upon your demise or removal from your home. You can sell the home and move to a new one or decide it is time you need more care like a nursing home. In either case you need to repay the loan. You do not make monthly payments and interest will compound on all but one of the available lifetime mortgages.
Here are the choices you have:
• Interest Only
Home reversion is another main choice. Today there are only a few of these plans remaining. The housing market has caused a struggle among banks to afford home reversion. The idea is that you sell part of your home to a provider. In turn they give you tax free cash in a lump sum that is not paid back. You sold something and gained money unlike a loan where you use the house as collateral.
The portion you do not sell is yours and remains yours until you sell it or die. At your demise the remainder of the house is sold to the provider. Your beneficiaries receive the lump sum for this sale. The provider then sells the home on the open market at current value. Since you received below current value as did your beneficiaries, the provider makes a profit on the difference given to you and the actual sale price.
You will need to meet certain qualifications before you can take out one of these products named above. Each provider will have slightly different qualifications, thus it behooves you to make a comparison. Your age is one qualification. Generally, for lifetime mortgages you can be 55 years of age up to 99 years old. Of course, most put a cap at about 75 to 80 years of age for a loan to ensure it will be paid back appropriately. For home reversion you have to be at least 65 years old. The cap for age will also vary on these plans. Health is another area along with the condition and value of your home.
It's every person’s dream to have an enjoyable and financially secure life in their old age. Have you ever thought how it is possible to experience an enjoyable life after retirement? The biggest drawback is that old people cannot go out for work and earn their daily bread! Some try and maintain some form of employment, even charity work to keep them occupied and working that grey matter. This is why these people keep looking for a steady flow of income. Various equity release schemes, pension schemes, insurance plans or retirement schemes can assure them of a steady income in their retirement period.
However, investing time and money in other schemes and plans might not be enough. You need to have something more reliable. Equity schemes are an agreement that takes place between a mortgagee and the mortgagor. Such equity release schemes are best suited for people over age 55 who do not have too much concern as to the inheritance they are to leave their children from the eventual sale of their property.
There is a vast difference in principal between equity release schemes and normal bank loans. The amount originally released via an equity scheme will be repaid should the borrower either die or move into long term care such as a nursing home. Amongst all, the roll-up lifetime mortgage is one of the most common forms of an equity plan that assure repayment from your house value. As long as the borrower is alive, he still has full ownership on his property and can continue living there.
The interest only lifetime mortgage is another type of equity scheme. It is almost similar to the lifetime mortgage scheme, but with a twist. Rather than the interest rolling up, the borrower only has to pay the amount of owed money at the end of the mortgage rather than paying the capital debt and the interest. The amount of interest is paid by the borrower as long as he is living in the property. This means you have a monthly payment to make.
The payment amount is based on how much you removed in equity. The lower the lump sum the less interest accrues on a yearly period. You still make a monthly payment, but it is calculated using the annual percentage rate. In this way it is a lot like a standard mortgage. The only difference between interest only mortgages and interest only lifetime mortgages is the duration of repayment. Most interest only mortgages require a ten year period before the entire balance is due. With the interest only lifetime mortgage you have until you move out or die. It just keeps going till you are ready to say end.
On the other hand, home reversion plans are referred to as one of the less common policy types. The home reversion provider offers a lump sum amount to the borrower, who in return sells a part of or his whole property. One advantage of this scheme is that whatever percentage is unsold will be guaranteed to pass to the beneficiaries upon eventual sale.
Since you sell a part of the property you receive money. It is a percentage of value lower than the actual market value. At your death or move to a new home, you sell the remaining portion to the provider. They give you the rest of the money for the house. The provider then sells the home on the real estate market and recoups their loss. The difference in what you are paid and what they get in the sale is their profit. The best part is you live in the home rent free until you want to leave.
You may have qualms about opening a new mortgage, even if you do not have to worry about monthly payments right now. For this consumer the home reversion plan exists. For those who do not wish to sell part of their home, lifetime mortgages are better. They might end up selling their home, but at least it is theirs while they are living in it.
• A home reversion mortgage requires you to be at least 65 years of age.
• Any lifetime mortgage can start at 55 years of age, and although you may take out this loan up to age 99, the average age is below 80.
• With these two categories of releasing equity, your home must undergo an evaluation.
• Your health is also factored in especially with the enhanced lifetime mortgage designed for those with health issues.
Equity release can be used for many different purposes, many of them lifestyle, but for many they are essentials to cover the costs of living in today's economic climate.
The term equity release is used to refer to raising money in the way of capital or income against the value of a property. An equity release scheme enables a homeowner, mostly those aged between 55-95 who have paid off their mortgage or have just a very small amount left to pay, to exchange value in their home for tax free cash or income, without the option of repayment. There are basically three types of equity release schemes: lifetime mortgage, home reversion plans and drawdown lifetime mortgage. Usually, the UK property must be of standard construction e.g., brick or stone and have a minimum valuation of £60,000. To understand this fully, learn about compound interest calculator tools. The calculator helps you with the cost.
For those who qualify for equity release schemes, and are interested, then the first step to take is to calculate just how much capital you can release from your home, before deciding which of the schemes will suit you most. These calculations usually involve the use of a compound interest calculator to determine just how much your home can generate for you as income. You are however advised to seek the help of an expert, an equity release adviser to help you review your options and determine which scheme is best for you. The adviser will also help you with your calculations to this effect.
Your adviser will help you survey the market to search for the best option for you and return with feedback that he will discuss with you before you eventually make up your mind on which scheme to adopt and then proceed with the rest of the process. This person should provide a Key Facts Illustration which is usually a ten page document explaining the ’ins and outs’ of the recommended scheme such as the costs, charges and the rolled up balance in the future years.
Advantages of equity release schemes include the fact that it will provide you with capital or income without you having to work for it, no repayment is required from you until your house is sold, and, depending on the stipulations of your scheme, you can still move houses if you want to.
The disadvantages however are that the equity value of your property will continue to decrease, assuming the property value does not increase. This can create an issue of inheritance. If you use all the equity in your home or it becomes smaller you may find that your children have nothing left when you pass on. This is because the lifetime mortgage might exceed the housing value due to the compounding interest.
You are protected from negative equity as long as you choose the right provider. Most providers under the Safe Home Income Plan offer a negative equity clause. It stipulates that you and your family do not owe more than the value in your home. It does not stipulate that a certain percentage must be left for your beneficiaries. More Info can be found here.
Given that you understand the benefits and disadvantages it is time to look at the products mentioned above:
This is not a loan. It is a sale of your home all or in part. You gain money from selling your home, but you also get to remain in your home with the lifetime tenancy agreement. This agreement promises rent free lifetime rental of your home no matter the portion you sell. If you do not sell the home in full, you guarantee your beneficiaries an inheritance even if the value of the home goes down slightly. Of course, it does depend on how much of the home is sold. If you sell 95% you might have an issue with inheritance.
A lifetime mortgage or rollup plan is the one discussed in most detail here. You have a mortgage, it compounds interest, and you obtain a lump sum to use. Drawdown is a variation on this same product in that you take a smaller lump sum, but gain instalments.
You can think of these instalments as income because you withdraw them as necessary. You can never withdraw more than is available in the equity account; however, you only accrue interest on the amount you use out of the account. It means if you leave a good portion in the account it is not charged interest.
Use the compound interest calculator to determine if an inheritance will be available. When you adopt equity release schemes you are borrowing against your home. Your motivation might be that you need cash funds for retirement purposes be it home improvements, new car, holidays, helping the children or just being able to ’live a little’.
A large section of the UK population is either retiring from work or close to their retirement age. They are looking for lump sum cash so that they could live their life in the way they like. Equity release schemes are one of the most feasible solutions that let them release the equity held in their property. New equity release schemes are coming to the fore and providing more flexible solutions for retirees. The key is to find the best equity release schemes that will work for you and your family.
Any good decision making process has its foundation in finding out as many alternatives as you can before choosing your best option. The same rule of decision making also applies when a prospective customer wants to find the best equity release schemes as a solution to release cash held in the equity of their property. Moreover, buying equity release schemes also allows them to stay in their home as long as they are alive or until they decide to permanently shift to a long term care home.
Innovation is the key behind the success to find the best equity release schemes and none of the equity release scheme providers have ever compromised in launching innovative products to lure the customers. The flexibility of options in their schemes acts as a catalyst in creating an increased demand from the customers. Looking at the history of equity release schemes, we found that most of the big successful market players have never failed to launch new and innovative products at a regular frequency.
The schemes which are the best today may get outdated tomorrow and if a company has found a way to keep modulating their schemes with the changing market dynamics then they have found the key to market success. No company could expect to reap the benefits only from a single product because the customer wants a variety of choices while making a decision to select one.
• Lifetime mortgages are one option you have in the equity release schemes. Under this category you have five choices: fixed, roll up, drawdown, interest only, and enhanced. Not all schemes are available from every provider.
• Products change all the time. While five schemes have been mentioned here you may find they are no longer available or come with special names depending on the provider. This could make it harder to find one in particular until you have compared them fully.
• An alternative to all lifetime mortgages is the home reversion scheme. It is an equity release scheme, but the difference is you do not owe money ever. You sell your home first and get money for the sale. You can sell all or a part of the home.
• Lifetime mortgages are loans with interest. You must pay the interest either during the life of the loan as in the interest only product or at the end when you repay the entire loan and all compounded interest.
• You have to be at least 55 years old to begin a lifetime mortgage. For the home reversion you need to be 65.
• Each option also has its own maximum age which has been known to be as late as 99 years old. However, most max out at 75 to 80. This is due to the decision making process it takes and the Financial Conduct Authority wanting to make certain older individuals are not entering into a product they do not understand.
• Inheritance is another factor. With most of these products it is extremely difficult to leave behind an inheritance. The only two that practically guarantee inheritance are home reversion and interest only lifetime mortgage.
Always be careful before making a decision regarding home equity releases. Speak with your family to ensure they understand what options you are considering.
It is even a part of human psychology to select from a wide range of options. Apart from that, you cannot expect a single equity release scheme to fit the requirement of all the individuals as they all are unique in their own ways. A variety of options in equity release schemes also ensures that you always have something in one or the other scheme that could match the specific requirements of customers. As long as you want to find the best equity release schemes you will have success.
In 2008, equity release schemes were in their heyday. Yet, it was also this year that retirees grew wise and realised the products had some serious flaws which helped to bring about the mortgage crisis and the credit crunch that followed. It was a hard time after the recession when the whole economy was churned out but the equity release schemes are gaining back in value in the market once again. Today, the mainstream mortgage market is led by equity release schemes.
Equity release schemes allow people to release cash without moving out of their home. They have all the rights to live in their home as long as they are alive or plan to shift permanently to a long term care facility. Recent statistics have shown that there is a substantial increase in written equity release business. This statistic has also revealed that more and more people are willing to release the equity held in their property to live their post retired life in their own ways.
The equity release schemes are specially designed for people over an age of 55 years. It allows them to release the equity held in their property without moving out of it. Equity release schemes help old people to fulfil their unrealised dreams using the cash that is otherwise held idle in their property.
The acceptance of equity release schemes is also increasing because of the various flexible options offered by the service providers. You could opt to pay back the interest regularly so that the interest doesn't accumulate with the principal borrowed. As an alternative, you could even opt not to pay any amount during your lifetime. In such a case, the property is sold to pay off the debt after your death and if any amount is left after the payment is done then it automatically passes to your beneficiaries.
You could even opt to take lump sum tax free cash from the equity release scheme or even secure a monthly income for the rest of your life. It also comes with an option wherein you could mortgage your property fully or partially depending on your individual cash requirement. Most of the equity release schemes offered today are specially designed to fulfil the modern lifestyle.
Now that you have had an overview it is time to look at the names of these products. This way when you begin comparing the products online and speak with financial advisers about potential options you are doing so with a keen understanding of them.
Interest Only Lifetime Mortgage: This mortgage is that interest only option mentioned above. You pay a monthly payment to ensure an inheritance, as long as you do not take the whole equity amount that is the house value.
Fixed Lifetime Mortgage: An older option is the fixed mortgage in which you and the provider determine a set interest to pay at the end of the loan regardless of the years you have left. This interest is attached to the principle balance and is paid when the entire balance is due.
Roll-up Lifetime Mortgage: A standard for the market, this option compounds the interest for the lump sum. Unlike the fixed mortgage your interest will keep adding up. Unlike the interest only mortgage you do not make payments. In the end with this mortgage you pay the interest that has accumulated and the lump sum balance you took initially. It can add up to more than your house value.
Drawdown Lifetime Mortgage: The interest will accrue on this mortgage like a roll up plan; however, you take a smaller lump sum at the beginning. You then have access to an equity account with your cash equity in it. This account can be accessed whenever you need it. You draw down more money hence the name given to this product. The interest you pay is only on the money you removed from the account rather than the entire equity available for you to use.
Enhanced Lifetime Mortgage: A relatively new product on the market is the enhanced lifetime mortgage. This mortgage is for people with illnesses that will cut their life short. It sounds cold, but actually it is meant to make your last few years easier by giving you a larger lump sum than is available in a roll-up or fixed plan option.
If this sounds like a good option you have a bit more research to do before making a final decision. You always want to ensure you are aware of the disadvantages of products as much as you are with the advantages.
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