5 Q&A’s – How Much Equity Release Should I Borrow?
The crucial decision with any equity release application is deciding on how much tax-free cash you should take. In order to obtain the correct advice with regards to these lending decisions you should certainly consult with a qualified equity release adviser.
By discussing your capital requirements, both immediate & in the future, you can assess which type of lifetime mortgage would be favourable for you & how much cash you should apply for.
Five important questions you should therefore be asking yourself are:-
- What are you spending plans for the first 12 months?
- Do I really need all the money upfront, or can I postpone some until a later date?
- Should I add the set up costs to the loan, if so, what impact with this have?
- Should I leave the release of equity until I am older, so I can take more cash?
- If I decide to do a drawdown plan, what impact will rising interest rates have?
These questions will provide a solid platform from which your decision can be made and for the right equity release reasons. So why are more & more people seeking this type of lifetime mortgage nowadays? First let’s look a bit deeper into equity release schemes themselves.
So what is the point of an equity release plan?
An equity release plan allows you to turn some of the equity built into your home into usable cash. While selling the home and downsizing is one way to do this, equity release schemes offer a way to access the cash without the need to sell the property and move out. Remember, equity release schemes should always be considered a mortgage of last resort, once all other alternatives such as downsizing have been discussed with your adviser.
People use equity release for various reasons. Some may need a cash lump sum for a one-off expense, while others may use equity release to supplement their income and support their lifestyle during retirement. Additionally, and more recently, we have seen an exodus from the lifestyle reasons for releasing equity. More people are now releasing equity for family reasons such as gifting to children, or repayment of mortgages that sold the interest only mortgage time bomb. The reason for borrowing and the amount, will ultimately determine what equity release plan will offer the best value for you.
There are a number of different equity release schemes available on the market today. Finding the right equity release can be confusing but thankfully there are comparison and advice websites that offer impartial advice about different plans, as well as useful tools such as the equity release calculator. Equity release calculators can help you get an idea of how much you could borrow and how much it would cost you based on your age, property value and any inheritance protection you may want.
Analyse your spending plans carefully
While using such calculators, they can help you find out the maximum amount you could borrow, it is not necessarily how much you should in fact borrow! Borrowing the maximum is of no use if you do not need the money straight away. An equity release plan is essentially a loan, and you need to pay interest on the amount released. It makes no sense to borrow a large sum of money, simply to put it in the bank earning next to no interest, and pay upwards of 5% interest on the money to the equity release lender.
This is why maximum borrowing does not always make sense. The general rule of thumb is to borrow the amount that would be sufficient to carry you through for about one year. There are equity release schemes, known as drawdown schemes, which allow you to borrow money in portions, as and when you need the money. For those who do not need the maximum lump sum release, but would like to have the option of borrowing more in the future, drawdown lifetime mortgage schemes can offer the optimum solution.
An equity release plan can be a flexible and innovative way to use the equity tied into your home without selling the property. As equity release plans have become popular, they have also become more flexible in nature. Depending on how much you need to borrow, and your individual circumstances, you can find an equity release plan that can suit your needs. An equity release calculator can give you an idea of how much you could borrow, and get a picture of how different equity release schemes would work for you.
For an individual meeting to discuss how much equity release to borrow, contact the independent equity release specialists on 0800 471 4796 or email info@equityreleasecalculator.net