Equity release has become one of the most popular finance trends in the current housing market. It provides a way for those who are aged fifty-five and older to obtain a cash lump sum, when other financial products may be unavailable to them because of their income and age. The lump sum received through equity release can be used for any purpose and can be an essential way for a number of older people to inject some financial stability into their retirement. The first stage of assessing whether equity release would be beneficial for you is to determine the maximum equity release lump sum available.
Calculating the Maximum Equity Release Lump Sum
There are a number of online calculators which can help to figure out the maximum equity release lump sum which may be available to you. This calculation is based on a number of factors including your age, gender, current mortgage balance and the value of your property. The online tools have been electronically programmed to collate the information you provide into a standard formula and work out how much you could receive from equity release by way of a lump sum. Personal details such as your age are needed to calculate your estimated lifespan, as equity release schemes are designed to run for the remainder of your life. Your property information is needed to work out the loan to value ratio which is applied to equity release lending.
Some equity release calculators will also ask for health and lifestyle information. This is because some equity release providers offer enhanced packages with a greater maximum equity release lump sum for those who are in poorer health and likely to have a shorter lifespan than someone of a similar age but in perfect health. Unlike some more conventional financial products which may impose financial penalties for those with a history of poor health, the general rule with equity release is that the poorer the health of the applicant, the greater the maximum equity release lump sum. Therefore, it is important to answer all the questions asked by the equity release calculator as accurately and honestly as possible. This will increase the accuracy of the results and ensure that you can rely on these figures going forward.
Should You Take the Maximum Sum?
When it comes to the decision of whether you should take the maximum equity release sum offered, this will depend greatly on your circumstances and requirements. You will need to consider the options including:
• The interest rate: Interest on equity release schemes will compound over time, since you will generally be required to make no monthly payments. Lenders will often offer more preferential rates of interest to those home owners taking out less than their maximum possible lump sum. This could work out to be a financially better deal over the long term.
• Additional draw downs: Some schemes offer the facility to draw down additional funds up to your maximum facility as and when you need them. This can mean a greater degree of flexibility and some assurance that in the event you need some cash quickly, it is there and available to you.
• Financial implications: Although the lump sum payment from an equity release scheme is tax free, there are other financial implications which will need to be considered. By taking a larger sum, you may find that you no longer qualify for government benefits and other financial assistance which is means tested. This could compromise your financial future and make it more difficult for you to maintain your standard of living.
• Reducing your estate: Obviously, the larger amount of equity released from your home, will mean that there will be less funds available for your beneficiaries upon your death. Some people are concerned about leaving money to their loved ones and so they would rather take a smaller lump sum and leave some equity for their family. However, a great number of retired people have seen equity release as a viable method of inheritance planning and use their release fund to assist children and grandchildren while they are still living. This can reduce the amount of inheritance tax which would become due on your estate when you are deceased.
Equity release can provide a great financial solution for a number of people in the fifty-five and over age group. The arrangements can be flexible enough to allow people to meet their individual needs and requirements. It is important to discuss your requirements with a professional adviser and they will be able to guide you as to whether you should take the maximum equity release sum. This will ensure that you obtain a great deal which is best suited to your requirements and allow you to proceed with confidence. Click Here for a free equity release calculator that will help start your equity release ball rolling.
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