How do Online Calculators Work Out the Cost of Equity Release?
You only need a few pieces of basic information to use an equity release calculator, and the tool usually looks at the value of your property and any secured debts you have to make an initial assessment.
The process means you need to enter details such as:
- The type of property you have - house, flat, terraced etc.
- How much you think your home is worth (you'd need a full valuation before getting a formal offer).
- Whether you have other debts or a mortgage secured on the house.
- Your age.
Some equity release products, such as lifetime mortgages, are specifically designed for retirees, so your age is important to check whether you are eligible.
You'll get an idea of the Loan to Value ratio (LTV) available - which shows a percentage of the property value the lender will offer.
Most equity release products provide up to 50% LTV, sometimes 55% depending on the lender and your circumstances.
For example, if you own a home worth £200,000 and have no other secured debts, you should be able to borrow from £100,000 to £110,000.
How Much Can I Borrow Through Equity Release Schemes?
It's impossible to give an exact borrowing limit. Still, based on average LTVs and property values, we've put together the below table to demonstrate what that means for your borrowing limit, depending on your property value and the LTV available.
|
Property value
|
£100,000
|
£200,000
|
£300,000
|
£400,000
|
£500,000
|
£1 million
|
|
20% LTV
|
£20,000
|
£40,000
|
£60,000
|
£80,000
|
£100,000
|
£200,000
|
|
30% LTV
|
£30,000
|
£60,000
|
£90,000
|
£120,000
|
£150,000
|
£300,000
|
|
40% LTV
|
£40,000
|
£80,000
|
£120,000
|
£160,000
|
£200,000
|
£400,000
|
|
50% LTV
|
£50,000
|
£100,000
|
£150,000
|
£200,000
|
£250,000
|
£500,000
|
|
55% LTV
|
£55,000
|
£110,000
|
£165,000
|
£220,000
|
£275,000
|
£550,000
|
As you can see, the total equity release loan depends very much on the LTV and how much your home is worth.
We recommend speaking with an adviser before you proceed so you know where you sit within this chart and can choose how much to apply for.
Can I Sell My House if I Have Equity Release Debt?
If you have an equity release product secured against your property, you might think you can't sell or are obliged to live in the same home forever - especially if you have a lifetime mortgage.
However, that is incorrect, and it's possible to sell your home, use the proceeds to pay back the debt and move on without any borrowing if you wish.
Note that some equity release products carry heavy early settlement charges. If you think you might wish to move or sell up at some point, it's essential to discuss this with your adviser so we can point you in the right direction.
Working Out the Interest Cost of Equity Release Through a Calculator
Interest rates vary between lenders, how much you're borrowing, and their risk assessment.
Applicants with a high-value home that would be easy to sell and those past retirement ages normally get a better deal since those factors mitigate the lender's risk and realistically mean they'll recoup the debt sooner.
Based on average interest rates, we've summarised below how your total debt might look depending on how many years you accrue interest and your age at the time of applying.
|
Loan value
|
Interest
|
Applicant age
|
Age at repayment
|
Total term
|
Total interest
|
Overall repayment
|
|
£25,000
|
3.55%
|
56
|
93
|
37 years
|
£65,885
|
£90,885
|
|
£30,000
|
3.75%
|
63
|
83
|
20 years
|
£32,644
|
£62,644
|
|
£35,000
|
4%
|
70
|
88
|
18 years
|
£35,903
|
£70,903
|
|
£40,000
|
4.2%
|
77
|
84
|
Seven years
|
£13,349
|
£53,349
|
The total interest owing increases the longer you live, and you won't know the whole term - the loan period only ends if you enter into care, pass away, or repay the debt.
It's important to understand how rolled-up interest can quickly add up.
In our above example, the lowest loan value of £25,000 resulted in the interest of over twice the original amount because the borrower lived for a further 37 years.
Estimating Overall Costs of Equity Release Explained
Since we don't know when or if we will go into care or how long we'll live, a lender uses a risk assessment process to decide what interest rate to offer.
This unknown variable is why equity release mortgage costs are extremely difficult to estimate!
Hence, a lender will ask about your age, health, occupation, medical conditions and lifestyle to predict the expected term.
Interest rates can be fixed from day one - usually for the loan's lifetime - or might have an upper limit so you can work out the maximum loan cost per year.
Can I Use an Online Calculator From Equity Release Advisers Under Age 55?
Not all equity release products are retirement mortgages, although lifetime mortgages and similar loans are normally only available to applicants aged over 55.
Other equity release products are open to any applicant with equity in their property, so it might not be the right product for you if you come across a calculator that only starts at 55.
Joint applications usually look at the age of the younger applicant to see whether the age limit applies.
Homeowners under 55 typically go for a remortgage to release equity rather than a specific equity release product - the lending costs and interest rates will not match those on an online calculator, so you'll need a different tool.
Whether you want to find the best value equity release product, need help comparing options, or wish to work out the right way of accessing capital held in your home, expert advice is important.
Equity release products often work on the basis that the lender will eventually sell your home, so you need to understand the implications and have all the information necessary to make a decision.
