Many people dream of the prospect of their retirement. However, in the current economic climate with quantitative easing measures which have compromised the real world value or pensions, a great number of people are worrying about the prospects for their retirement. Once you reach retirement age, the avenues to conventional finance can sometimes be closed to you. However, equity release schemes have been specifically designed for the over fifty-fives age group. This can enable you to release funds tied up in your property. Equity release calculator programmes are readily available to check whether you would qualify and how much you could expect to receive.
How Equity is Defined
Equity could be described as your stake in your property. Equity release calculator tools essentially calculate your equity by taking the balance of any outstanding mortgage from the value of your home. When you first purchased your property, you may have borrowed ninety per cent of the property price from the bank as a conventional mortgage. This would mean that you would have had ten per cent equity. As time passes and you pay off more of your mortgage, together with property prices increasing, you would find that you have more and more equity tied up in your home. For many retired people, they have little to no mortgage on their home, but may be struggling for actual cash.
For the purposes of equity release, many people can expect to release between thirty and fifty per cent of their equity as a lump sum or additional income. The reason for this is that the equity release loan requires no monthly payments. The interest on the loan is accrued and added to the balance of the loan in the form of compound interest. You are guaranteed the right to residency in your home for the rest of your life and the balance of the loan is only repaid once you have passed away, or if you move into a care home for the long term.
The Benefits of Equity Release
When considering equity release from your property, equity release calculator tools can highlight a number of benefits from specific equity release packages. However, there are numerous benefits to equity release which apply to the majority of schemes. These include:
- Obtain a lump sum or an additional income stream: When choosing equity release, you will have the option of obtaining a tax free lump sum or an additional income. The equity release product allows you to borrow money against the value of your property to finance this sum. This can be very helpful if you are planning a large purchase such as a second home, need to supplement your pension or are looking to financially assist your children or grandchildren. There is no restriction to how you spend the lump sum or income; it is yours to do with as you please.
- Improved lifestyle: For many people equity release is an effective method of improving their lifestyle. Essentially you have leveraged the value of your property in order to live off your investment. This can mean that you have additional disposable income without compromising your existing income. This could mean that you could take a once in a lifetime dream holiday or simply spend more time with your family. This type of scheme can allow you to fully enjoy your retirement without worrying about bills and finances.
- Effective tax planning: Not only is your equity release sum tax free but you can use the funds to plan tax effectively. Many people opt for an income or draw down facility rather than a lump sum so that they can minimise their tax risk and not compromise their eligibility for certain means tested financial assistance. However, some people utilise equity release as a method of inheritance planning. By gifting money to your beneficiaries while you are still alive, you reduce the risk that they will need to pay inheritance tax when you pass away. The current inheritance tax threshold is set at £325,000. This may seem like a high amount but it will include the value of your property. By releasing the equity from your home, you can continue to live in your home but financially assist your family and help them to avoid paying inheritance tax in the future.
If you are interested in releasing equity from your property, equity release calculator tools can provide a good starting point for your research. They can provide you with details of schemes which you would qualify for and provide an insight into the maximum lump sum you would receive. This will enable you to have the information necessary to make an informed choice about proceeding forward with an application.