Throughout this guide, we will focus on the most popular form of equity release, the lifetime mortgage. All lifetime mortgages that we recommend meet the Equity Release Council Standards and afford you extra protection.
How do you calculate equity release?
To calculate the maximum loan available on an equity release plan, you require the age of the youngest homeowner and the property value. Plans start from age 55 when you can release a maximum of 23% of your property's value. On average, on each birthday, you can release an extra 1%, up to a maximum of 55%.
You will typically be able to release between 23% and 55% of the market value of your home.
The age of the youngest homeowner significantly impacts the maximum percentage you can take on an equity release plan. The age provides us with a Loan To Value (LTV), which is the maximum percentage the equity release lender could lend on a property.
What is the maximum percentage you can get on equity release by age:
|Age of youngest homeowner
||Maximum percentage of property value which can be released (LTV) with a lifetime mortgage (equity release)
To find the maximum equity release loan amount, you need to multiply the LTV by your property value.
Examples of lifetime mortgages on a £300,000 house:
At age 55:
Perfect Health - The maximum equity release is £69,000 (£300,000 x 23.0%)
Medically Enhanced - The maximum equity release is £81,900 (£300,000 x 27.3%)
At age 60
Perfect Health - The maximum equity release is £89,700 (£300,000 x 29.9%)
Medically Enhanced - The maximum equity release is £102,300 (£300,000 x 34.1%)
At age 70
Perfect Health - The maximum equity release is £121,500 (£300,000 x 40.5%)
Medically Enhanced - The maximum equity release is £131,400 (£300,000 x 43.8%)
At age 80
Perfect Health - The maximum equity release is £149,250 (£300,000 x 49.8%)
Medically Enhanced - The maximum equity release is £154,500 (£300,000 x 51.5%)
At age 90
Perfect Health - The maximum equity release is £165,000 (£300,000 x 55.0%)
Medically Enhanced - The maximum equity release is £139,200 (£300,000 x 46.4%)
Please note: The above figures are for a standard construction freehold house in England. Should you wish to release more, other financial products may be available, including a Home Reversion Plan or a Retirement Interest Only Mortgage. Please contact us for further information surrounding these different types of plans.
It is essential to know that an equity release must be the sole charge on your property. Therefore, you will be required to repay any existing mortgages on your property as part of the equity release. Don't worry, the equity release funds can be used to repay any mortgages, and you will then receive the remaining net sum as cash.
To find out how much you could release, use our equity release calculator; it requires no personal contact information, and the results are instant.
The youngest homeowner's age significantly impacts the maximum percentage you can release; however, this is not the only factor.
Medically underwritten equity release plans
A medically enhanced equity release plan can allow you access to larger release amounts.
With a medically underwritten lifetime mortgage, the lender will take into consideration your health and lifestyle. The lender asks a set of simple questions and will consider how your answers could impact on your life expectancy.
If the lender believes you will live shorter than average, they will anticipate being repaid sooner, and treat you as if you were older.
As you can see in the grid above, the impact on the maximum amount available for medically enhanced plans can be substantial.
The younger that you are, the more significant the impact could be!
With some equity release plans, you may incur an arrangement fee with the lender.
You are not required to pay the arrangement fee up-front. Most lenders allow you to either deduct the arrangement fee from the loan amount or add it.
If you are trying to obtain the maximum amount available, I would suggest adding any arrangement fee to the loan amount.
Equity release plans with cashback
Some equity release plans also include cashback. Cashback can be great as it is in addition to the loan amount, and it does not attract any interest.
The cashback you receive can be used for anything you wish. However, it can be a great way to help pay for any setup fees associated with your plan.
Some lenders offer you a fixed sum regardless of your release amount. For example, some Pure Retirement lifetime mortgages provide £895 cashback on completion.
However, some lenders provide you with a percentage of the amount released. For example, 2% or even 5% extra.
The grid above does not include any cashback that you may be able to receive, but our calculator will show you plans, including cashback!
Joint vs Single
We have already explored how the maximum equity release available is based on the age of the youngest applicant. However, some lenders offer differing LTVs for joint applications compared to single applications. This could mean that, as a couple, you could receive slightly less money than if you were to apply singularly.
I have never liked the fact that some lenders price their plans in this way. However, they have stated that for joint lifetime mortgages, there is a higher chance that the plan will run for longer (and their loan will be repaid later).
Another consideration is the impact on a married couple whose application will be in one name.
The majority of lenders require that if an applicant is married, the equity release application be made in joint names.
But there are times when you may wish to apply in one name only, including:
- Where the property is already owned in one name;
- Where the spouse's primary residence is a different property;
- Where the youngest applicant is below the age of 55 (the minimum age for equity release plans);
- When one spouse is older, and you wish to apply in one name to obtain more money or a lower interest rate.
Other factors reduce the number of plans available, which could impact on the maximum release amount available to you. These include:
Your property's construction can impact the number of equity release plans available.
Whilst we have seen lenders become much more relaxed with equity release underwriting, there are still limitations on some types of property.
The equity release security, your home, is of paramount concern to all equity release lenders. This is because, for most applicants, the sale proceeds of the property will be the vehicle used to repay the loan in the future.
For this reason, the equity release lender wants to lend on properties which they believe are more likely to sell at fair market value in the future.
If you live in a property that is not built of bricks and stone and does not have a tiled pitched roof, you may find that you cannot access all equity release plans, and therefore, you could receive a lower maximum release amount.
We advise on and arrange equity release plans throughout the United Kingdom. If you live on the mainland in England or Wales, you will have access to all equity release plans available.
If you live in Scotland, there may be a reduction in the number of plans available.
There are currently only two lenders who lend on properties in Northern Ireland. Therefore, if you live in Northern Ireland, you can expect to see a lower maximum amount available.
Lastly, if you live on an island off of the mainland, you may find that some lenders do not lend where you live.
If you would like to receive a more accurate calculation of the amounts available to you and the applicable interest rates based on where you live, use our equity release calculator.
Equity release plans have continued to become more and more flexible over recent years, with new plan features across a range of financial products.
As part of my financial advice, I will discuss what you feel your future holds and detail plan features that may benefit you.
For example, you may live in a large home with high running costs.
While you and your spouse live together, you want to remain in your home. However, if there were just one of you living in the property, you may not want or have the financial means to stay.
A great feature which may be appropriate is to look for a solution which includes a "significant life event exemption".
This exemption allows you to repay your existing equity release within three years of the death of the first borrower or the first borrower moving into long-term care without incurring an Early Repayment Charge.
Alternatively, you can make repayments towards your lifetime mortgage. Most plans allow you to make voluntary payments without additional charges; however, some older plans do not.
Having the maximum release or the lowest interest rate may not be your best solution. As a part of our financial advice meeting, I will explore all features with you and recommend a plan that best meets your needs.
Click here to arrange your free consultation.
With all equity release plans, other people can live with you. However, if you have a tenancy agreement in place or are receiving an income from those living with you, it may limit the number of plans available to you.
Second / Holiday homes / Buy-to-let
The equity release calculator on our website is based on properties that are your primary residence (your main home).
But what if you own a different property on which you wish to take equity release?
There were plans offering equity release on other properties, but they have temporarily been withdrawn from the market. We hope that they return in the future.
Alternatively, we can explore other financing options you could arrange on the properties, such as a buy-to-let mortgage that requires monthly payments.
Interest rates for lifetime mortgages have continued to decrease over time. But what does a typical interest rate look like?
Our general rule is that an interest rate of 5% is excellent, 6% being average, and 7% plus being for more substantial borrowing with the most product features.
Remember: Lifetime mortgage rates can be fixed for life, meaning you can borrow money long-term without making mandatory monthly payments.
There are currently no other ways of borrowing money similarly at such little cost!
Do you want to find out more? Use our equity release calculator to find out what interest rates you can achieve.
For most equity release plans, interest will be accrued daily and added to the mortgage monthly. On this basis, many lenders express their interest rates as a Monthly Equivalent Rate (or MER for short).
But if you are not planning to make payments, is this the figure that you should be considering?
While showing a 'lower' interest rate may look more attractive, I believe that the MER is usually not the most appropriate interest rate. For this reason, I will always provide you with the Annual Equivalent Rate (AER).
But what's the difference?
Put simply, the AER shows how interest accrues every year when you do not make any payments and your mortgage runs.
Note: Make sure that you understand if the rate you are quoted is MER or AER. You must compare the same type of interest rate on different financial products. I often use the phrase "you shouldn't compare apples to pears".
You are not required to make any interest payments during the life of the equity release plan, although you can choose to make payments if you wish.
At the end of the equity release plan (when you move into permanent long-term care or pass away), you must repay the money borrowed and the interest charged.
Please see our interest calculator below, which shows a plan's cost over its estimated term.
You will likely qualify for equity release if you are a UK homeowner aged 55 and over.
There are various underwriting factors which lenders take into consideration, including:
- the Country you live in;
- your age;
- your property value (there are varying minimum property values by Country);
- your requested loan amount (there are different minimum/maximum amounts).
Remember, you will also need to clear any existing mortgages/charges on your property as part of the equity release application.
I have written a complete guide on equity release eligibility, which explores eligibility criteria in greater detail.
What does Martin Lewis think about equity release?
Martin Lewis has many great tips and tricks to save money, but what are his opinions on equity release?
Martin Lewis states equity release can be a good financial product if you require the funds and are not concerned about the impact on leaving an inheritance. However, he says equity release can be expensive and to always consider downsizing first, as he believes it is the easiest way to release equity from your home.
Martin Lewis has many thoughts on equity release; some are important to listen to, and others need further clarification. You can read more about Martin Lewis and equity release here.
Now that we have explored the possible maximum release amounts available to you, and discussed the range of interest rates in the market, you may wish to compare the equity release plans individually open to you.
Our equity release calculator provides you with four tailored quotations. To compare the full range of plans available, use our equity release calculator, and you will find out how to access our equity release comparison tool.
Our market-leading equity release comparison tool finds the most cost-effective equity release plan for the amount you need.
Let's look at a sample extract from an equity release report for a 75-year-old homeowner in England with a £126,000 freehold house.
To begin, use our equity release calculator; it requires no personal contact information, and the results are instant.
If you have further questions, why not speak with one of our qualified advisors?
Call us on 0207 158 0881 or use our online form to book your FREE consultation.
While a qualified equity release advisor has written this guide, it is not intended to be used as financial nor legal advice and should not be relied upon.
To understand the full features and risks of an Equity Release plan, ask for a personalised illustration.
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