Equity Release Calculator Money Saving Expert

How Equity Release Works

Equity release is a way for homeowners to access the value of their property by taking out a loan secured against it. Unlike a mortgage, which is repaid over time, equity release provides a lump sum or regular income, with the amount repaid when you die or move into long-term care.

There are two main types of equity release: lifetime mortgages and home reversion plans. Lifetime mortgages provide a lump sum or regular income, while home reversion plans involve selling a percentage of your home to a lender, who then sells it back to you when you die.

Types of Equity Release

There are several types of equity release products available, each with different features and benefits:

• Lifetime Mortgages: These provide a lump sum or regular income, with the amount repaid when you die or move into long-term care.
• Home Reversion Plans: These involve selling a percentage of your home to a lender, who then sells it back to you when you die.
• Equity Release Schemes: These are government-backed schemes that provide a lump sum or regular income, with the amount repaid when you die or move into long-term care.
• Home Buyback Plans: These involve selling a percentage of your home to a lender, who then sells it back to you when you die.

Calculating Equity Release

The amount of equity release you can access depends on several factors, including the value of your home, your age, and the type of equity release product you choose. The calculator on this page helps you estimate your potential equity release value.

The formula used to calculate equity release is:

Where:

• Home Value: The current market value of your home
• Outstanding Mortgage: The amount you still owe on your mortgage
• Equity Release Rate: The percentage of your equity that you can access

Example Calculation

Let's look at an example to illustrate how equity release works. Suppose you have a home valued at £300,000, with an outstanding mortgage of £150,000. If you qualify for an equity release rate of 50%, your potential equity release amount would be:

In this example, you could access £75,000 through equity release, which could be used to fund a variety of financial goals, such as paying off other debts, funding retirement, or making home improvements.

Pros and Cons

Equity release can be a useful financial tool, but it's important to weigh the pros and cons before considering this option.

Pros of Equity Release

• Access to Capital: Equity release provides a lump sum or regular income, which can be used to fund a variety of financial goals.
• No Repayment Required: Unlike a mortgage, equity release does not require regular repayments. The amount is repaid when you die or move into long-term care.
• Flexible Use of Funds: The funds can be used for any purpose, such as paying off other debts, funding retirement, or making home improvements.

Cons of Equity Release

• Permanent Loss of Equity: Equity release involves a permanent loss of equity in your home. The amount repaid when you die or move into long-term care is typically less than the amount you initially received.
• Interest and Fees: Equity release products typically charge interest and fees, which can significantly reduce the amount you receive.
• Long-Term Care Risk: If you require long-term care, you may need to move into a care home, which can be expensive and disruptive.