Tag Archives: Releasing Equity

What is the Equity Release Compound Interest Formula?

Understanding the Equity Release Compound Interest Formula

Equity release can offer a flexible solution for many people to deal with their financial difficulties by accessing the equity built into their home; but it is important to remember that releasing equity from your home is a potentially life changing decision.

Depending on what type of equity release plan you opt for, you either lose ownership of a part, or all of your home, or have a lifelong mortgage secured on your property. Home equity schemes are not for the faint hearted and thorough research and professional advice is key to success.

In the case of roll-up equity release schemes, the interest on the lifetime mortgage keeps on compounding, and the final amount can often end up being so large as to erode all the equity in your home, leaving nothing for your beneficiaries.

Protection from ongoing compounding interest

However, the good news is that all equity release mortgages recommended by any authorised equity release adviser should come with ‘no negative equity guarantees‘. This ensures that the value of the equity release mortgage can never be more than the value of the property, period. This also provides protection for the plan-holders beneficiaries in that they themselves can never end up owing anything to the lender themselves.

In order to calculate whether this situation would ever arise you need access to an equity release compound interest calculator which can help you understand how much the interest on your mortgage could compound to over a certain term.

The viability of an equity release plan from the perspective of the lender, depends on what plan it is. For instance, in the case of an interest only lifetime mortgage, the shorter the term of the loan, the fewer the risks for the lender. But in the case of a roll up lifetime mortgage, the longer the term of the loan, the more interest compounds and the more profitable it becomes for the lender.

Equity release compound interestarises when the interest payable on the equity release loan amount is added to the loan amount itself, and interest is then payable on this combined figure, and so on and so forth. This way, the interest accrues interest on itself, and goes on compounding.

This compounding of equity release interest can quickly result in a large debt, and often this is the reason why many people with roll-up lifetime mortgages could have potentially been left with a negative equity on their loan. However, the no negative equity guarantee fortunately prevents this from ever arising.

Compound interest calculator tools

Without this it could have meant that far from being able to protect some of the equity in their home, they could have not only lost all the equity, but actually ended up owing money to the lender! An equity release compound interest calculator gives you a way to know exactly how much your loan balance will be every year. The calculator uses a simple formula to calculate the compounding interest on the loan amount and uses this to predict how much the amount will have grown to be after a certain period. This can help you plan ahead and get a better understanding of your finances and how much you’re likely to owe the lender after a certain number of years.

It is possible to set up a compound interest calculator on your own computer using software programmes such as MS Excel or Google Spread sheet. It is also possible to use an equity release compound interest calculator available on the internet.

Alternatively, if you would like more help with calculating the compound interest potentially payable on your mortgage, you can seek advice from an independent equity release adviser. They can always request a Key Facts Illustration from an equity release provider of your choice, where the year-on-year figures showing the compounding effect of the interest will be shown.

Where to Compare Equity Release Pros and Cons Before Completing Any Calculations

Compare the Equity Release Pros and Cons Before Completing Any Calculations

Over a decade ago, releasing equity from your home was virtually unheard of. Today, equity release plans are flourishing, with more and more people choosing to turn to the equity in their homes for relative financial security during retirement.

Equity release is not suitable for everyone, but it does provide a flexible solution for many, and the growing popularity of equity release plans are proof of this. Many new and more flexible products have become available in recent times, and the fact is that the equity release sector has never looked more vibrant.

But the world of equity release schemes still remains confusing for many and it is difficult to negotiate your way around so many different plans; all with their own terms of lending and eligibility criteria. How then does one find the equity release plan that best suits their individual needs and circumstances? And how does one compare different equity release plans to find the best equity release deals?

The answer lies in speaking to a qualified equity release expert who can guide you through the different options and help you understand the equity release pros and cons of each alternative in the context of your individual needs. But firstly, a simple way to sift through the various options is to use an impartial equity release schemes calculator to find out the maximum amount you could raise through different equity release providers.

Equity release pros and cons

These equity release pros and cons are paramount to the decision-making process as they gauge one’s attitude to risk which your equity release adviser will use towards his recommendation. They will not only outline all that is good about equity release schemes, but advise the pitfalls of equity release schemes also. Knowing both sides of the story is essential moving forward as this could be classed as the biggest financial decision of your life, your first ever mortgage aside.

It is important to find a comparison site that offers objective and impartial advice, and has an up-to-date database of providers and plans. This way you can be sure that you are not losing out on something better and are getting the fairest picture of what could be available to you. Check whether they list all the equity release pros & cons for you to easily understand before even seeing or paying for equity release advice.

Independent advice companies like EquityRelease2go.com have pioneered the use of equity release calculators that can quickly work out the maximum release based on some simple facts about your case, including your age and property valuation. These companies continue to provide an impartial and up-to-date service to users who are looking to find the most suitable home equity release scheme.

Not all free equity release calculators are truly free and fair. Some calculators only show a fraction of the picture; while some others use personal information for unrequested marketing from paying partners. While many providers and even comparison sites use equity release schemes calculators as a ploy to extract information from enquirers, there are also companies that seek to provide genuinely unbiased information to customers based on results from all reputable equity release providers.

In summary, it’s vitally important to do your research before committing to anything, seek the equity release services of a reputable independent company who offer a nationwide advisory service such as Equity Release Supermarket whose testimonials & client feedback seem to justify this.

How Could An Equity Release Calculation Help My Retirement Plans?

An Equity Release Calculation Could Help Your Retirement Plans

Financial planning during retirement is becoming increasingly important. With rising living costs, growing costs of care, and a shrinking public expenditure budget, it is only wise to use your financial assets optimally to provide for you during retirement. It is no surprise then that equity release plans have become so popular among older homeowners in recent times.

Equity release plans offer a way to tap into the equity tied up into a home in the form of a cash lump sum or monthly cash payments and use it towards anything you wish. The money is repaid only when the property is sold, which is usually upon death or when you move into permanent long-term care. There are no restrictions on what the money can be used for, and it allows a way to use the cash from your home without the need to sell and move out. Equity release therefore offers a way to optimise your property value without any restrictions on what the money can be used for.

Reasons for releasing equity

Different people may use the release of equity for different purposes. For instance, someone may need a cash lump sum for a holiday, home repairs, or for a cash gift for grandchildren. Cash flow can often be a problem during retirement, and some people may need a regular income to supplement their retirement income in order to maintain a comfortable lifestyle.

Just as there are various reasons for people to want to access the equity tied into their home, there are different equity release plans available on the market to suit different client’s retirement needs. Obtaining an equity release calculation can help one not only to work out the maximum borrowing through any given equity release plan, but also to understand how the money can be borrowed. For instance, whether it can be borrowed as a single lump sum, as regular monthly payments, or as and when required, through a drawdown lifetime mortgage scheme.

Facilities for monthly income?

Most people use an equity release calculation to work out the maximum amount they could borrow, and to understand how this money can be used optimally to get the best returns. While some people may best benefit by borrowing in the form of monthly installments, unfortunately this is not an available option with any of the current drop of equity release companies. The only previous lifetime mortgage provider that offered a monthly income option was from Northern Rock & we all know about their demise!

Therefore, if a regular income is required borrowers will need to consider other options. This may come in the form of the more flexible lifetime mortgage schemes and may choose to borrow through a drawdown lifetime mortgage scheme. Some may also choose to borrow the maximum amount and use it to purchase an annuity or other investment product, although using equity release to purchase a market linked investment product could be potentially risky due to the uncertain returns available in the markets. In fact, other than to create an emergency fund, equity release schemes should never be used for investment purposes and is something a qualified equity release adviser should never recommend.

A qualified equity release adviser can help you understand how an equity release calculation can be performed and the money released best used. The first step to understand how releasing equity could potentially help you during your retirement would be to use an equity release calculator to work out how much money you could release through different equity release plans, and how it could be used optimally to plan for your retirement. Once the parameters have been established & monetary figures confirmed the application process can begin in order to convert your wishes into reality & retirement plans fulfilled.

Do Your Maths and Equity Release Schemes Will Add Up!

Equity release schemes have become more and more popular in the past few years. But it is also a fact that equity release schemes still ring alarm bells in the minds of many. The main concern that people have with equity release is that it can erode your estate and leave little equity for your beneficiaries.

Another alarming scenario is where the loan could become bigger than the sale value of the property resulting in ‘negative equity’, where you could potentially owe money to the equity release provider. While these were legitimate worries until some years ago, equity release schemes today involve far fewer risks.

Equity release and regulation

All equity release schemes come with a no negative equity guarantee as schemes these days are incorporated into the Equity Release Council rules & regulations check list. This protects consumers from ever owing more than the value of their house, even if the loan did surpass the current valuation. Basically, the lender will waive any excess, with the worse case scenario being no equity for the children.

Equity release today can be used as a flexible tool to optimise your financial assets to support you during retirement. The fact is that equity release offers a way for older homeowners to access the value that has built into their home, without having to sell their property and move out. Rising costs of living, rising costs of care and ever shrinking pension funds are making it difficult for many pensioners to support their lifestyle during old age.

What can equity release be spent on?

Retirement is seen as the golden period of life, when one should be free to enjoy the fruits of their lifelong labour. Whether it is for a one-off expense such as a holiday, or a home extension, a cash gift to children or grandchildren, or a regular income supplement, many people are turning to equity release as a way to access the cash in their home without having to sell and downsize.

So, are there risks involved with equity release schemes? As with any financial product, it is important to understand the full implications of releasing equity from your home. By releasing cash from the value of the property, you essentially devalue it to a certain extent, and this is bound to have implications for your beneficiaries. However, unlike equity release schemes of the yore, no matter how large your debt, your beneficiaries will never owe anything personally to the equity release lender.

There are various equity release plans designed to suit people in varying circumstances and with different needs. It is important to understand your own needs and priorities and use your financial acumen to find out which type of equity release product suits you best. An equity release calculator can help you work out the numbers with respect to different equity release plans, and consulting an equity release expert can help you understand how different plans can work for you.

The maths can add up to the solution you are looking for, but as ever it is the details you input in the first place the determine the end result. Caveat emptor as they say!

What are the Implications in Taking Maximum Cash from an Equity Release Calculator UK?

Implications of Taking the Maximum Lump Sum from an Equity Release Calculator UK

To understand the implications of borrowing the maximum amount that the results an equity release mortgage calculator UK give you, it is necessary to understand what an equity release does, as well as to understand how borrowing more than you need can be potentially risky.

Although equity release plans have become much safer today than many years ago, there are potential equity release problems that everyone should be aware of before releasing equity. This must always be discussed and the dangers be highlighted before pressing the buttons of the equity release mortgage calculator UK tool.

One of the most common concerns or equity release problems that people have with equity release is that the scheme could potentially erode all the value of their property, thereby affecting any inheritance they may wish to leave behind. This can be a concern for some, but not for all & therefore it is the duty of your financial adviser to establish these steps with you.

Years ago, there was also the possibility of negative equity where the beneficiaries could have to end up paying the equity release provider due to a loan that had grown bigger than the equity in the house. Today, however, this is not a possibility as all equity release plans now come under the auspices of the Equity Release Council (formerly Safe Home Income Plans –SHIP) which means they come with a no negative equity guarantee. This is kind of indemnity policy for the lender which guarantees that the beneficiaries cannot end up owing more than the value of the property. The worst case scenario is that they will receive nothing if the mortgage balance is equal to or more than the value of the property.

An equity release calculator UK can help you find out the current maximum amount available in the market that you could be able to release from your property. As such, equity release calculators give you an idea of the maximum amount of money that you could release, which is not the same as the amount you necessarily should release!

Nonsensical reasons to release equity

Releasing the maximum equity from your property when you don’t really need all the money could result in one of the most common equity release problems – complete devaluation in the equity within your property. It will mean that if the money isn’t needed just yet it will probably sit in your bank account, earning next to no interest, while you will have to pay interest on the amount to the equity release lender! The average rate of interest on roll up equity release schemes today is around 6%, whilst even the best ISA rates are little over 3%. Therefore, taking the maximum release when not fully required, is poor financial planning.

A roll up equity release plan works on the principle of compound interest. This means that the interest charged on the balance is added to the principle amount and interest is charged on the combined amount, and so the cycle continues. This means that with interest rates of around 6%, the balance on your account could potentially double in about 11 years! Care & precise financial planning are important to gauge the sensible level of borrowing should these schemes be the best option for you.

Delay for as long as possible

With this factor in mind, age can also be an important consideration in how much you take & when. We have just seen the projected equity release calculation for a UK customer. Taking equity release at age 55 will have a potentially longer term to run based on life expectancy than someone of 80 years of age. Therefore, more caution should be exhibited when applying for equity release schemes at a younger retirement age. Preferably, anyone considering equity release at age 55 should try & delay if possible to age 60 before taking a release of equity.

Releasing the maximum that an equity release calculator UK shows you may be useful and necessary for some, but it also has its dangers and can lead to some common equity release problems and bad press!

As illustrated above, it could potentially increase the debt disproportionately, erode your estate and encroach on your beneficiary’s inheritance. It is important to fully understand all the implications of an equity release plan. A qualified equity release adviser can explain the terms and consequences of each option and help you make the right decision.

NB. Don’t be afraid to say ‘no’ if now isn’t the right time, or reason to do it.