If you’re considering releasing equity from your home, our simple Equity Release Calculator will help you to estimate how much money you can draw down.
Simply enter your age and the value of the property, and it will estimate for you how much money you could release.
Understanding the Equity Release Calculator results
Based on your age and the property valuation, the Equity Release Calculator tells you the minimum and maximum amount that you can borrow on standard (facility*) terms and the maximum amount that you can borrow on enhanced terms. Enhanced terms (i.e. more money) are offered by some lenders to borrowers who have certain medical history, or lifestyle factors such as smoking for example.
The figures provided by the Equity Release Calculator are only an estimate. The true figure that you will be able to borrow from Equity Release will depend on further questions regarding the state of your property and your heath.
How much can you release with Equity Release?
The exact percentage that you will be able to borrow through Equity Release depends on your age, health, and other factors regarding your property.
The amount that can be released is expressed as a percentage of the value of your home and is determined by the age of the borrower, the youngest, if you are a couple. Uniquely for a Lifetime Mortgage, older borrowers can receive larger sums, so ageing does have its benefits after all!
In fact, some lenders go further still, by offering ‘cashback’ incentives, often up to 5% of the loan amount itself. This extra money is not added to the loan so interest is not charged on it. In effect, it is a gift, although it can mean you are being charged a higher rate of interest so ends up being paid for in a different way. If you want to go ahead with Equity Release, we suggest you seek independent financial advice to help you understand your options fully.
Is there a maximum amount of money that can be released?
All lenders have a maximum cash value, with many limiting to under £1,000,000 but others going as high as £2,000,000 or potentially higher still in individually considered cases.
Typical Equity Release interest rates
Interest rates are just one consideration when thinking about Equity Release, as this determines the overall amount that will need to be paid back to the lender. Rates are usually fixed for life, so a financial adviser can show you how much you might end up owing depending on how long the loan runs for.
Rates vary widely, depending on how much money you want. Those borrowing smaller sums may get the lowest rates (from over 2% presently), whereas someone wanting the largest amount may expect to be charged over 5 or 6% presently.
Equity Release interest rate example
Interest determines how much you will eventually have to pay back. Let’s look at an example based on the average Equity Release rate midway through Q4 2020 (source: Equity Release Council). If a person releases £100,000 from a property valued at £360,000, they may be offered the 4.01% average rate. This means that the money they owe increases by 4.01% every year.
After 1 year this will mean that they will now owe £104,010. After 5 years, they will owe £121,723, and after 15 years £180,354.
How is Equity Release interest calculated?
The majority of Lifetime Mortgage lenders offer fixed interest rates for the whole term of the loan, so they’re able to accurately forecast exactly what the loan amount will increase to over the life of the loan.
All lenders charge interest for every day that the loan is in place, although they will actually add it to the loan balance either monthly (MER – ‘Monthly Equivalent Rate’), or annually (AER – Annual Equivalent Rate). A good financial adviser will know which method a lender uses, and will be able to calculate and explain which Lifetime Mortgage is best for you.
What is the best age to take Equity Release?
There isn’t a right or wrong age at which to take Equity Release. Ideally you would only take what you need, when you need it irrespective of how old you are. What really matters, is that you have access to money to help you do the things you want to do, when you need to.
Generally speaking, the longer you wait before taking Equity Release, the more you can expect to leave as an inheritance. This is because a rolled-up interest Lifetime Mortgage will have interest added and compounded over time, eroding more of the remaining equity in your property. Some lenders offer Interest-only Lifetime Mortgages, where you can pay interest back monthly and others will allow you to make lump payments, both of which will help reduce the end payback amount.
The actual rate of interest charged is a consideration in itself. For example, borrowing £50,000 at 3%, will see the loan doubling to £100,000 in just under 24 years. If the rate was higher at say 5%, it would take a little over 14 years to reach the same £100,000 debt.
How house price changes can affect an inheritance
Any change in your property’s value will affect how much equity is left for yourself or your estate when your loan is eventually repaid.
The example graphs below show the effects of changing house prices on an individual’s overall equity over time. This individual released £50,000 from a property valued at £300,000, aged 70. The interest rate used in the examples below is 3%.
Increasing house prices
Any increase in your property’s value over the period of time will belong to you, not the lender, which could effectively offset the cost of borrowing.
In this example, an annual 1% increase in house prices would help to cover the costs of the increasing interest owed.
No changes in house prices
If there are no changes in house prices over the course of the loan, then the increasing interest is the only thing that will be affecting the overall equity left.
As you can see in this example, the interest owed will continue to increase over time, meaning that the estimated equity would decrease.
Decreasing house prices
Keep in mind, however, that house prices can also go down. This reduces your overall equity, as you can see in this graph.
All Equity Release providers listed with the ERC are required to offer a ‘No Negative Equity Guarantee’. This means that the amount owed will never end up exceeding the sale price of the property.
Other Equity Release costs to consider
As well as the Equity Release interest rate, there are other costs that you should consider before releasing equity from your property. Find out more about these other costs below:
A financial adviser will receive commission from the lender, but to ensure that they are able to meet the costs involved in advising in this specialised area, they usually charge a fee which can be a percentage of the released sum, (normally around 2%), or a set amount.
Equity Release solicitor
The Equity Release Council requires customers to take independent legal advice, so that their best interests are looked after properly. The solicitor’s role is not only to help perform the legal work, but also to ensure that the homeowner fully understands the details of the contract that they are signing.
Equity Release is a specialised area for Solicitors, so a good Financial Adviser will typically recommend a law firm that has the right experience for handling things, often at a fixed price. You can expect to pay around £800 for a solicitor, and this is paid on completion from the released money.
Lenders have their own solicitors, who will work with your chosen solicitor to finalise the Equity Release arrangements.
Equity Release provider fees
Equity Release providers tend to offer free valuations, with most not charging any fees, or just nominal amounts of around £25-30 for bank transfer fees. Some Equity Release providers charge a fixed fee to cover their own legal costs and set-up costs. This can be in the region of £500 – 995 and is usually added to the sum released, although interest will then be charged on it.
Obtaining independent Equity Release advice
The Financial Conduct Authority requires anyone considering Equity Release to take financial advice. Financial advisers that are regulated by the Financial Conduct Authority and are the best option when looking for independent Equity Release advice.
The Society of Later Life Advisers (SOLLA) and The Later Life Academy are both accreditations that demonstrate a financial advisor has extensive knowledge of Equity Release, as well as knowledge about safeguarding potentially vulnerable older people.
Laterlivingnow are a small team of dedicated and experienced Equity Release advisers. A trusted voice in the field of later life planning, they will prioritise your needs in order to help you make the best financial choices. They are members of the Equity Release Council and founder, Simon Chalk, serves on the advisory board of SOLLA.
Find out more about Laterlivingnow's Equity Release advice.