How to work out how much equity is tied up in your home

The most common way most equity release companies work out how much equity can be released from a certain property is through the means of an equity release calculator.  Find out more about equity release, including what can affect the release amount.

Equity Release Calculators

The information a company will require when working out the amount of equity you are entitled to is:

1.       Age of you and your spouse

2.       Whether you still have a mortgage and if so, how much

3.       How much your property is worth in the current market.

The age of you and your spouse is important as it could make a difference as to how long the company will wait for the loan to be repaid.  So the older you are, the higher the value of your house, and the lower the outstanding mortgage you have, the more you will b e able to release from you home.

As this shows, an equity release plan could be a good solution for those who do not have a very substantial pension to live on in retirement.

Equity release schemes are usually only offered to those over the age of 55 years old, and there are two main types of equity release on the market – lifetime mortgage and home reversion plans.

Lifetime mortgages require the homeowner to take out a secured loan against their property.  This loan will then either pay out a cash sum, either in one lump payment or allow you to release the money in stages (known as a drawdown equity release plan)..  As long as the homeowner has the loan, it will accrue interest.  Therefore, someone who took out a plan aged 55 years and lived until their 90s would accrue more interest on their loan than someone who took out a plan at 80 and lived to the same age.

Most equity release schemes, and all SHIP approved schemes, prevent negative equity from occurring by guaranteeing that the loan value will never become higher than the value of the house, regardless of the length of the loan and the interest accrued.  Before taking out an equity release plan ensure it has negative equity protection.

The second main type of equity release plan is home reversion.  This is a good scheme to opt for if you wish to know how much of the house you will be able to pass on to your family or those in your will.  It works by the homeowner selling all or part of the property to a home reversion company in order to receive a cash lump sum.  There is no interest added and if you retain part ownership of the house you will benefit from any increase in the property’s value.

If you require an extra income to boost your pension and you have paid off the majority of your mortgage, then an equity release plan could be the best solution.  You can remain living comfortably in your home, and even ensure your family or beneficiaries receive a share of the property when you and your partner die.  As mentioned above, an equity release calculator can provide an estimate of how much you may receive.