For many people in their retirement, equity release can seem like the perfect option for their circumstances. However, it does represent a major decision and as such requires serious consideration. There are a number of online resources and tools such as equity release calculators which offer a lifetime mortgage calculation which will enable you to become more familiar with the calculation process.
Where to Start
The first step in researching equity release should be to find out if you meet the basic criteria. Not every home owner is eligible regardless of the amount of equity in their home. There is a minimum age requirement of fifty-five and in the cases of joint applications, the age of the younger party is used for the calculations. There is also a minimum loan to value ratio which must be adhered to. This can mean that although you may have the amount of equity you require in your home, you may not be able to unlock it with equity release. You will also need to know the potential maximum lump sum which is available to you. This type of lifetime mortgage calculation can be a little complex; so many people use a free online equity release calculator to find out this information.
Once you have determined that you meet the criteria for equity release and you have been provided with a maximum sum available for your lifetime mortgage calculation, you will need to determine if this is sufficient for your plans. If you have an immediate need for the funds, you will need to assess if this amount is enough or if it exceeds your requirements. If the amount offered is not enough, then you will need to make some hard decisions about whether you wish to compromise your plans and accept a lower amount or explore alternative avenues.
If the sum exceeds your expectations and requirements, you will need to consider whether you wish to apply for the maximum amount of release. This may not necessarily be a good idea in the long term as the higher the amount of release, the more it will cost in the longer term. You may wish to consider alternative plans such as a draw down lifetime mortgage, which offers a smaller initial sum but with a facility to draw down additional funds should you require them. You would only pay interest on the funds which have already been drawn down, which can save you a great deal in the long term. These types of lifetime mortgage calculation can be more fully explored using comparison tools and calculators.
You should also consider using more than one type of calculator to obtain a more balanced view of the available products. For example, many companies do not offer home reversion plans. These are not a very common equity release product in which the home owner can sell all or part of their property but retain the right of lifetime residency. This option is only available to those aged sixty-five and over but can be more appealing to those who wish to have a greater control over the estate which will be left to their beneficiaries. Most lifetime mortgage calculation tools will not consider home reversion plans, so you should shop around to try a number of different tools and see what options are available.
Factors which Affect the Lifetime Mortgage Calculation
All forms of equity release calculator will base their calculations on a number of factors. These include the age of the applicant or applicants, the gender of sole applicants, the amount of any outstanding mortgage or secured loan and the value of the property.
Additionally, some calculators will also be linked to enhanced equity release schemes. These offer preferential deals with a greater amount of equity release for those people with a terminal illness or history of poor health. Due to the impaired life expectancy of these people, the equity release provider will offer a larger percentage of equity release when compared with someone in good health of the same age.
It is important to understand the factors which affect the amount of equity release available and the lifetime mortgage calculation applied. This will enable you to gain a better insight into the calculation and qualification process. By using this information you will be able to ensure that you can make informed choices about whether you wish to proceed with an application, explore other options or postpone an application until you have reached another age group.