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.
How is an Equity Release Calculated?
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.
Choosing the Minimum or Maximum Amount of Equity Release
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.
Considerations for the Minimum or Maximum Amount of Equity Quoted
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. Such information can be found at: http://www.interestonlylifetimemortgage.com/
Our clients are satisfied with their new lives!
National Equity Release Pension Conference, Bath Street, Bakewell, Derbyshire, DE45 1BX.
You can also contact us by phone , or you can send us a message here: