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With the people around the world still feeling the impact of the global crisis in the financial industry, many are trying to establish a financial solution to their current recession problems. These problems are not limited to the working age population as many older people have seen the real world value of their pension compromised by quantitative easing and inflation. Even those who have made adequate pension provisions may find that their pension falls short of meeting their needs. This is the main reason why equity release schemes have experienced a resurgence in popularity over the last few years.

What are Equity Release Schemes?

Equity release schemes are specially designed financial products for the over fifty-fives age group. They allow home owners aged between fifty-five and ninety-five to release the equity tied up in their home without the inconvenience and upset of moving home. The funds released are provided tax free and can be used for any purpose. Many people use equity release to supplement their pension income, make large purchases such as a holiday home or assist their children or grandchildren financially.

The global recession has made it very difficult for younger people to take their first steps on the property ladder, but with equity release, older relatives can leverage the equity in their home to finance a deposit for a first time buyer without placing their home at risk. This can be done because equity release schemes are intended as a lifetime mortgage or loan. The amount borrowed does not require monthly repayments as the interest is accrued and then compounded on the balance each year. The total loan balance is only due to be repaid when the home owner passes away or moves into a long term care facility. At this stage the property is sold, the balance of the loan settled and any remaining money from the sale is distributed to the beneficiaries of the estate.

How Much Can be Borrowed with Equity Release Schemes?

The amount of money which can be borrowed with equity release schemes depends on a number of factors. These include the age and gender of the applicant, the value of the property and the balance of any outstanding finance secured on the home. In some cases the health of the applicant is also considered. This is to assess how much equity is available in the home and if it meets the loan to value ratio specified by the lender. Additionally, the personal information is used to estimate the approximate lifespan of the applicant which would determine the duration of the loan.

Generally, applicants who are older will be able to release a greater percentage of equity compared to someone younger. However, women have a statistical likelihood of living longer than men, so their gender can affect the amount which can be borrowed. Additionally, some providers offer impaired life equity release schemes which consider those with an impaired life expectancy, for example someone with a terminal condition or long term illness. These cases will generally be offered a greater percentage of equity release based on the estimation that the lifetime mortgage will run for a shorter period of time.

The general rule of thumb for an equity release scheme is that you should be able to release thirty to fifty per cent of the value of your home. However, this is dependent on your circumstances and the type of property. There are a number of equity release calculators which are readily available online. These offer free and confidential examples of the amount of release which would be available in your specific circumstances. Many of these calculators will even allow you to compare the details of specific equity release schemes to determine which represents the best possible deal for your requirements and circumstances.

In order to obtain a full view of the equity release schemes which would be applicable for your circumstances, it is recommended that you utilise a number of different equity release calculators. This will provide a wider range of products to be assessed to increase your chances of finding the best possible deal. This will enable you to assess the maximum amount of release possible, compare interest rates and examine the financial implications of choosing a specific product.

If you are interested in exploring equity release schemes and are unsure if they would meet your requirements, an equity release calculator can provide a great starting point. However, before making any final decisions about the feasibility of specific equity release schemes, you should consult professional specialist advice. This will ensure that you are confident in your decision and assured of the best possible deal.