Have you ever wanted to know what Equity Release Calculator is? You’re not alone. Many people have no idea about this term and are curious how it will work for them.
Let get down to business!
What’s an Equity Release Calculator?
An equity release calculator is a tool that can help you look at your future financial needs and how they might be affected by taking out an equity release.
It considers variables such as the amount of income needed each year, what we’re investing in (e.g., pension), and any other savings available to us now or in the future.
On the other hand:
It will also show whether there’s enough money for people to survive on and the consequences of taking out an equity release. Long-term care, for example, is not covered by an equity release. The tax position is also important to consider.
Benefits of an Equity Release Calculator
The benefits of using an equity release calculator are that it makes the process easier by allowing you to see a summary straight away about how much money is needed each year, what pension we’re invested in, and any other savings available to us now or in the future.
It also shows whether there’s enough money for people to survive on (indicating that you may not want an equity release), how much it will cost every month if you do get one, and what consequences taking out a release might have. A home reversion plan, for example, cannot be used to pay off a mortgage.
Things to Consider
Let’s have a look:
- What is the interest rate on your mortgage?
- Is there a buy to let mortgage or an endowment policy attached to it?
- How long do you want this equity release plan to last? (i.e., years)
- Are there other assets such as pensions that can be used in place of the equity release?
- How much of an outstanding mortgage do you want to repay during this time, and what is your maximum monthly payment possible (e.g., £1000)?
- What will happen when your interest rate rises in future years?
- Do you intend on moving house over these years, or would you like to have some flexibility with where you live throughout this plan?
Do You Qualify?
If you’re over 60 and have an interest-only mortgage, then you may qualify for the Equity Release Calculator. To be eligible for this type of calculator, the person applying must also:
- Have no dependents or anyone who would need financial support from them in future years;
- Own a property that they have lived in for at least three years;
- Have a regular income of less than £60,000 a year.
If you have dependents or those who rely on your financial support, it would be better to find another type of calculator more appropriate for your needs.
Equity Release Calculator can only assist with paying off mortgage debt – not other types such as credit card debts and personal loans. It will also help pay living costs if no available pension pot is left over after using this equity release plan.
Why Is Equity Release a Priority?
There are many reasons why people might want to consider equity release. One of the most common is that it can be a good way for those nearing retirement age (or who have already retired) to make their money go further at this stage in their life by not having to worry about paying rent or mortgage repayments.
But, of course, there are also downsides – you will need an independent person living with you if you wish to keep your home after releasing equity, and you will need to repay the amount of money that has been released – which means having a large enough pension pot after using this equity release plan.
Best of all:
If you consider equity release as an option for your future finances, then it is important to discuss the pros and cons with a qualified equity release adviser before proceeding.
In addition, there might be other equity release options available such as downsizing or mortgage annuities which could also work well for you depending on your situation.
Types of Equity Release Schemes
There are three key types of equity release schemes:
- The lifetime mortgage;
- Flexible premium loans;
- A combination of both.
The Lifetime Mortgage is a plan where the person would borrow against their home and repay it over time through monthly installments.
These are repaid until death when ownership transfers to someone chosen by the individual (usually an heir).
Here’s the deal:
This type of agreement allows more upfront capital than flexible premium payments but also means that should they die before repayment has been completed, then there will be no way for loved ones to honor any outstanding debt which may have accrued. The other disadvantage with this scheme is that as soon as equity release interest rates rise – so make monthly repayments.”
The Flexible Premium Loan is arguably the most popular option for those looking to release equity, with fixed rates until the end of a term. This means there is no fluctuation in monthly repayments should interest rates rise – but it also means it’s more difficult to predict what your eventual debt will be.
A combination of both schemes would work well if you’re looking for an affordable way to manage retirement and want some flexibility which could see you paying off less than anticipated as house prices fall (or vice versa).
- Can you afford to make monthly repayments from your pension?
- Will the property generates enough income should interest rates rise in the future?
- Do you want a fixed or flexible plan?
- What is your preferred age of retirement – and can this be achieved with either scheme?
- Do you have any other assets that could be used for your retirement income (e.g., private pension, ISA investments)?
- Equity Release Calculator often costs about £200 to £500 for a professional valuation.
- There are also ongoing charges of around £50 a year.
- Interest is charged based on the money you borrow (the amount not repaid to your pension).
- You may also pay an annual fee which reduces as time goes by, but will always be at least £100 a year and typically more than this.
The costs are best considered in three parts: arrangement fees paid upfront for arranging it; ongoing charges – lower if you take out smaller amounts over longer periods; and interest rates.
Who should use an equity release calculator?
The answer to that question is a little more complicated.
Equity release calculators are not for everyone, but if you’re considering one of them, it’s worth weighing up the pros and cons before making your decision.
Let me show you:
These include things such as how much income they may provide in retirement; whether or not their interest rates will be competitive with other forms of borrowing; the amount of work involved (e.g., filling out a lot of paperwork); and what kind of property could be used as security for the equity release loan.
For retirees with a small pension and looking to release equity from their property, an equity release scheme might be worth considering as it is cheaper than alternatives such as reverse mortgage equity release or remortgaging.
However, for other people – those on higher incomes, without any children living in the house (i.e., no inheritance risk), with only one property type which has been paid off before retirement age, and whose medical needs can be met by state benefits alone – they may not want to use up all of their capital to live better during retirement; there would be nothing left over for emergencies or future generations because the property would have been used up.
For people who do not want to rely on the state for help or those that cannot afford medical treatment, a reverse equity release mortgage might be worth considering if they are happy with their house as security and can meet monthly repayments.
How Do You Calculate Equity Release?
The calculation is based on your age and income – typically from a private pension, the State Pension, or an ISA. It’s then calculated as if you were already retired and receiving that amount of money each year.
Your Equity Release Calculator will be expressed in years up to which point it can repay all debts, including home equity release; life expectancy (expected average survival), taking into account any existing illnesses; interest rate charged on loan; plus other appropriate factors such as inflation protection for basic expenses.
Why Use Equity Release Calculator?
It’s the simplest and fastest way to get a rough estimate of how much your equity release could cost.
What Is The Advantage Of Using An Equity Release Calculator?
It is a much cheaper option than other equity release solutions, which can have repayment charges and cost considerably more.
What Are Some Situations Where You Might Not Want To Use Our Equity Release Calculator?
When you need protection from inflation or financial crashes; when there’s uncertainty around inheritance money or pension income; if interest rates are high right now, it could mean that your home will be worthless in future years – then this would affect how much debt relief we provide.
The Equity Release Calculator is a free tool to help you estimate the amount of equity release or mortgage relief for your property
If you’ve been thinking about using this type of financing technique to pay off your home and retire without debt, please feel free to use our calculator as an educational resource.
We hope that it will give you some idea of how much money can be saved by taking out equity from your house (or other real estates). Of course, you should also speak with a financial adviser before making any decisions so they can review all potential options available.