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19
Nov

Should You Take the Results of an Equity Release Calculation Literally?

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Two pieces of information are used for the equity release calculation, your age and the value of your home. It seems pretty straightforward and easy to enter correct data and receive an accurate result; however, there are actually a lot of factors that can hinder accuracy when using an equity release calculator on your own.

Age of the Youngest
An example of how someone can skew their results when using a calculator is the age you provide the calculator. The calculator does not have any idea how old each person in your home is. It has no way of knowing if the age you input is the one the equity release company is going to use.

• The youngest homeowner must be age 55 for lifetime mortgages and age 65 for home reversion plans.

A homeowner is defined by the property title. If the person is not in the property title and cannot sign for a loan, they do not qualify as part of the new loan; therefore, the youngest person on the property title is the person’s age you need to use in the calculator. Many consumers do not know this and may use their own age which could be older than the youngest person by a few years.

The calculator shows the results based on age and home value, thus if the age is not the one the equity release company will use, the results can show a larger maximum amount for the tax free lump sum than is actually going to be provided.

Valuing your Home
Did you hire an appraiser to tell you the value of your home? When you conduct online research for equity release schemes you probably are not ready to spend the money it takes for an appraisal. Plus there are equity release companies willing to offer free valuations. This means the number you use as the home value may be inaccurate in the current market.

Factors that apply include changes in the stability of the economy, particularly in the housing market where houses can start to appreciate. Recessions depreciate home values, which is why it turns into a select buyers’ market. A sellers’ market is where you have the upper hand because demand for your home drives the price up.

The more value in your home the more you can get released from equity. In your equity release calculation if you based the number of an appraisal you had when you bought the home 30 years ago the result will be skewed. You may find you could get double what your home was worth 30 years ago.

There are ways around this situation though. Nationwide offers an online tool that takes an old valuation, your home’s location, and will provide you with an estimate of its current value. Zoopla is also an option as you can find out about properties that have recently sold, pending sales, and homes on the market. By finding a comparable house in size and style in your area you can use their sale price as the home value.

But you are working off of an estimation, which means the results are an estimation: a guide and not to be used as a set in stone amount.

Brokers Narrow it Down
With equity release calculator results used as a guide, you will want to speak with an independent broker who is qualified and properly regulated. They can offer you the best products on the market for your situation by taking your information. You saved yourself some time in learning if it is possible to release some equity from your home. Now you need an experienced person to help you narrow down the best equity release for your needs.

They can do this by asking more pointed questions than the simple online equity release calculator. For example, if you have had ill health you may be asked to fill out a health and lifestyle questionnaire that would lead to a larger maximum amount available to you.

They may steer you more towards the drawdown mortgage if you have few expenses in the first 12 months of taking out the release in order to preserve funds for further into your retirement. It all starts with the equity release calculation and moves on from there. Armed with your guide as a cash sum number, you can decide if you want to take less, find a different product, or simply downsize to avoid lifetime mortgage products.

14
Aug

Is an Equity Release Calculator the Same as an Equity Calculator?

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There are numerous types of calculators available online to help you get answers to your questions including options for mortgages and equity release products. There are always going to be distinct differences when it comes to how these various calculators work, so you need to be clear on what they do and whether they are the same because the names are similar or not. In the case of an equity release calculator and equity calculator, you have two different types of calculators designed to give you two different answers, even when the names or keywords sound the same. In fact, you might run into a site that uses both phrases only to find out there is just one type of calculator available to you.

Unfortunately, some websites are misleading in order to get all consumers to visit, and most particularly those that can use their products. It is a long story but basically it goes back to the original concept of marketing for consumers with the new Internet. Now we are more refined and get into niches to ensure proper targeting. As long as you keep this in mind, you can search properly for exactly what you want.

Equity Release
An equity release calculator is specifically designed to target lifetime mortgages and home reversion. It is for individuals who are over 55. This is because the market for these equity releases is for those who are over 55 and heading into or already in retirement. These products provide money to supplement what used to be incoming from a job. It keeps you in the lifestyle you enjoy without making major changes.

Equity
An equity calculator is for residential mortgages, secured loans, and similar products designed more for individuals who are under the age of 55. As long as you have a steady income and can prove the income, you are able to get these types of loans. In recent years certain mortgages like interest only have not been offered above certain ages such as 65 because they are due to be paid at 75, when the person will be in retirement and may not have the funds to make the monthly repayments of interest. This is also different from the interest only lifetime mortgage which allows for interest repayment, but has the cap of a lifetime for the individual. Again, lifetime mortgages are for those aged 55 and over versus the interest only product that is not.

Understanding the Differences
Now that you know the calculators are for different age groups, it is possible to discuss the generic details of each in more context. An equity release schemes calculator is designed to use your age and the home value to tell you a maximum allowable lump sum. The older you are, the more money you can unlock from your home’s equity. This is on the assumption the money will be paid back sooner because you are closer to your death or needing long term care in a facility, versus living in the home. The more value in the home, the more you can obtain in a loan as well. Equity release works on the concept of loan to value percentage, where you get a certain per cent of the home based on the accrual of compounding interest over your expected lifetime.

With standard mortgages for the under 55s, mortgages are set on a fixed term. For interest only it is usually 10 years, where the principle balance must be paid in a balloon payment at the end of those 10 years. The interest is paid monthly. A 30 year fixed loan obviously has all payments in by the 30 year mark, although many refinance and thus extend the terms for another 30 years. The point is you are making payments throughout the mortgage as a means of dwindling the amount owed at the end.

With equity release you are not, so you pay interest in full plus the capital sum in full at the very end. It makes for one very large payment. The calculator for simple equity loans has to account for the length of term you will have the loan for such as 10, 15, 20, 25 or 30 years. It also accounts for the value of the property based on the amount you need to get the loan and pay for the property or to take equity out. You can usually release up to 85% although sometimes only 75%. Thus when you look for an equity release calculator you do not want an equity calculator to give you results and vice versa.

21
Nov

What is Equity Release: Understanding the Basics

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Many retired people have heard the term equity release, but a great number are unfamiliar with the financial concept. In order to understand what is equity release, you will need to be aware of the basic principles.

 

What is Equity Release?

Equity release is an umbrella term for a number of financial products. Equity release schemes are designed to allow people aged over fifty five to release the equity which is tied up in their home. The home owner can borrow against the value of their property, but unlike a conventional mortgage or secured loan there is no monthly payment or fixed term.

Equity release schemes are designed to be in place for the remainder of your lifetime. Since there are no repayments, the interest accrued is compounded on the balance of the loan. This balance is only due for repayment if the home owner goes into long term care or when they pass away. At this point, the home is sold and the proceeds used to repay the balance. Any remaining monies are distributed to the estate beneficiaries as normal.

 

What is Equity Release Used for?

Equity release schemes offer a lump sum, additional income or a combination of both. These funds are tax free and can be used for any purpose. Many people use equity release funds to supplement their pension, improve their home, take a holiday of a lifetime, purchase a holiday home or even plan their estate.

The funds from equity release can be spent, invested or given away. Many retired people may not have the liquid assets to assist their family but have a great deal of equity tied up in their home. With the current economic climate, many pensioners are using equity release to supplement their income and assist their children or grandchildren to purchase their own house. Since equity release schemes guarantee the right to reside in their home for the rest of their lives, this can be achieved without compromising their own home.

 

What is Equity Release Qualification Criteria?

Since equity release schemes are a little more complex than a conventional mortgage or secured loan, the qualification criteria is a little more detailed. There is a minimum age restriction of fifty five and the property must have a market value of at least £50,000. The amount of release offered can vary from thirty to fifty per cent of the value of the property. This will depend on a number of factors including your age and gender, the value of your home, the balance of any mortgage and in some cases your medical health status.

In order to determine the potential duration of the scheme, the lender will need to estimate your anticipated life expectancy. The longer the potential duration of the loan, the smaller the amount that will be offered initially. For example, a woman aged fifty five is going to be offered a far smaller percentage of equity release than a man aged eighty. This is because it is almost certain that the woman will outlive the man. In cases of joint applications, the age of the younger party is used for the calculation. Some lenders do offer enhanced plans which offer larger release percentages based on life impairing conditions. For example, if you have a severe condition which will compromise your life expectancy, they will offer you a larger sum than someone with the same qualification criteria who is in perfect health.

 

What is an Equity Release Calculator?

Simply because the qualification criteria can be a little complex, there are a number of online tools called equity release calculators. These tools are free to use and take the information you supply and apply it to a formula set by the lender. This will determine whether you are eligible for equity release and the equity release sum which would apply to your circumstances. These tools are confidential and allow home owners to research their options in the comfort of their own home without feeling any sales pressure. It is recommended that in order to gauge the market place fully, you make use of several different equity release calculators. This will enable you to gain a good perspective of the schemes which are available and suited to your circumstances. This can enable you to have the information necessary to make an informed choice about proceeding further and seeking out professional advice.

If you are interested in what is equity release and whether it would meet your financial requirements, it is worth taking a little time to research your options. There are numerous online calculator tools available and a number of brokers and advisers who specialise in equity release, offering impartial advice. Equity release can be a great financial solution for many retired people, but it is important to understand the basics and any restrictions or limitations which may apply. This will help you to proceed, confident that it is the right choice.

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