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.