Is the Lifetime Mortgage Calculator the Most Popular Analysis Tool?

By Mark Gregory on

You want to know how much equity you can release. It is the very reason you have started looking into products like equity release schemes for retirees. You are in need of money and you already have a budget you need to meet. Yet, you are unsure if it is feasible to afford the amount you have in mind. This is where a lifetime mortgage calculator will come in. The calculator can help you decide if you can raise the amount of money you require and whether equity release is the proper way to do so.


Background on Equity Release
There are two products for equity release schemes retirees can obtain: lifetime mortgage and home reversion. Home reversion is not a loan, but a partial or full sale of your house. In general, you release a part of the house to gain funds you can use, but it is a percentage of the home value not the true market value. The buyer is looking for an investment where they will provide a smaller lump sum than partial total value and hope the home appreciates over your lifetime.

Lifetime mortgages account for 98% of retirement equity release products, making the lifetime mortgage calculator the most popular analysis tool. It also means you are more apt to consider lifetime mortgage. A lifetime mortgage is a loan with an APR (annual percentage rate). The APR is based on the current Bank of England base rates, your age, and home value. It can be fixed or variable too.

The mortgage provides you with a lump sum or drawdown account based on the type of product you choose. The APR is then calculated based on your mortality rate. An average mortality rate exists from a theory of mortality table. Your age is found on the table and then the company factors in any illnesses you might currently have. This is also how they determine the overall maximum amount of the loan.


Calculating the Release on Your Own
You will need to find a home reversion calculator if you intend on using home reversion, as lifetime mortgage calculators do not use the same formula and rarely allow you to do both estimates.

The calculator will ask for the same things as the mortgage broker: home value and your age. Using your home value plus your age it will take the typical or average interest rate currently available and provide you with a maximum lump sum amount. From this you can determine if you want to speak with an independent financial adviser or a broker.


Using the Funds
Another main question besides how much can you get from an equity release is what can you use that money for? You have several options in mind, right? Perhaps you want to buy a new car, go on a dream holiday, or clear an existing mortgage?

The money can be used as you wish. It is a tax free sum of money provided to you. This means you could provide your children or grandchildren with some money to help pay their expenses. One caveat is capital gains tax. If you are providing money to relatives as a gift, you need to stay within certain limits of capital gains tax. Over that limit and they end up paying taxes on it for that year. You also have a specific time limit for giving money, such as staying alive a certain amount of years after you made the gift. These are things you will want to speak to a financial adviser about before you gift any money.


Following the Trail of Information
Even if the calculator does not provide promising results, do not give up. Conduct more research before you decide equity release is not a possible option for you right now. As long as you are 55 years of age, you can find companies offering lifetime mortgages. You need to be 65 years old for home reversion.

Study comparison sites after using a calculator. A comparison site will display information on companies such as More2Life, Pure Retirement, Aviva, and Just Retirement. These are just four of the companies offering equity release products. They all have different interest rates, including variable and fixed rate options. You may find the lifetime mortgage calculator used an APR of 5.75% variable, where you could obtain 5.63% at a fixed rate. The difference could mean an affordable lifetime mortgage for you and your family as a means of gaining much needed retirement funds.

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Categorised in: Equity Release
This post was written by Mark Gregory