Important things to know before opting for an equity release scheme

Equity release has become a popular method of financing recently. It allows homeowners to retain some of the value of their home as cash, which can be used for anything, from paying off existing loans or making home improvements. If you’re thinking of opting for an equity release, you probably want to learn more about it. That is where this article is important as it focuses on some of the main aspects of equity release.

Equity release options
Equity release options can be of two types:

Lifetime mortgage
This is the most popular equity release option. It involves borrowing a set amount of money by using your property as security. You can either take the money as a lump sum or series of smaller payments. This loan amount is usually paid back by selling the home when the last borrower passes away or moves into long-term care.

Home reversion
The home reversion option involves selling part or your entire home in return for money. You can receive the money as a lump sum or regular payments. Keep in mind that the property is usually sold for less than the market value. The borrower has the right to continue living in the property until they die or move permanently into residential care. However, the borrower has to agree to insure and take care of the property.

Eligibility criteria
Equity release isn’t an option for everyone. To qualify for an equity release scheme, you must meet the following criteria:

You must be at least 55 years of age to get a lifetime mortgage.

You must be at least 65 years of age to qualify for a home reversion plan.

You must be a homeowner, and your property must be located in the UK.

Your home must be in an acceptable condition and over a certain value, usually £70,000. Also, keep in mind that some lenders may not accept certain types of properties.

You must have little or no mortgage left on your property. This criteria may be different across multiple lenders.

It’s worth remembering that lenders may consider a few additional details when reviewing your application and eligibility for an equity release option.

Equity release interest rates
Financial experts maintain that equity release interest rates are at record lows currently, which makes it an ideal time to consider choosing an equity release. In general, interest rates between 3% and 4% are considered excellent and just over 4% are considered good.

The great news is that average interest rates on equity release are currently around 4%. Some lenders are even offering interest rates close to 3%. So, there’s a good chance that you can get a favourable interest rate on your equity release. However, it’s vital to be aware of a few factors that may affect the interest rate your lender charges. These include the amount you need to borrow a percentage of your property, your credit history, marital status, age, and more.

How to calculate equity release?
You don’t need to visit a financial advisor to figure out how much money you could release from your home. All you need to do is search for an equity release calculator online. Many online financial services allow potential borrowers to calculate equity release for free. To calculate, you need to enter a few details, such as the age of the youngest applicant, the estimated value of your property, the type of property being used as security, mortgage balance, and miscellaneous charges. However, some financial services may ask for additional information like your personal phone number or email address.

In general, an equity release calculator can help you determine the maximum money you can raise from your property, the total interest costs, and the change in interest rate in relation to the amount borrowed.