How Much Equity Can I Release From My Property?

Equity release schemes are a fantastic solution if you need to access funds towards the end of your life.

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Equity release schemes are a fantastic solution if you need to access funds towards the end of your life. It can be for various reasons, such as helping a loved one with the deposit for a property or covering unexpected medical bills.

If you’ve looked into these schemes, you’re likely wondering – how much equity can I borrow? We’ve provided an overview that should give you a good idea of how much is available and what steps you should take before signing a contract.

How much equity can I release?

The amount of equity you can release from your property will depend on a variety of factors. Lenders will consider your age, the type of policy you’re after, and the value of your property. Since there’s no one size fits all figure, you should head over to our equity release calculator for an estimate.

How much equity can I release?

Below, we delve into the different types of equity release schemes and how much would be available to you in those particular instances.

Below, we delve into the different types of equity release schemes and how much would be available to you in those particular instances.

Types of equity release plans

The right plan will depend on your needs and circumstances. Therefore, having prior knowledge and conducting thorough research is paramount to landing a good deal. You should also seek financial advice from a professional financial advisor that will guide you through the best options.

Lifetime Mortgage

These are the most common types of equity release plans. You borrow an amount against the value of your property. The funds can be paid to you in a lump sum or instalments, depending on your preference and whether the company provides it.

There are also various types of repayment options, including:

  • Lump-sum: You receive the funds in one go, and you only pay off the loan and interest when you sell your property. This typically occurs when you either pass away or go into full-time care.
  • Interest-only: You receive a lump sum payment but opt to pay the interest monthly. That means the amount to be paid at the end of the plan will be considerably less.
  • Capital and interest: You receive the lump sum but pay the interest and part of the loan each month. This option type is best for people with a monthly income surplus.

Typically, you can release up to 50% of your property’s value. The more you borrow, the higher the interest rates will be. Most companies will also have minimum requirements, such as a minimum equity release of £10,000 and a minimum property value of £70,000. To give you a better idea of the costs involved, here’s an example quote:

  • A 60-year-old applicant with a property worth £250,000 could borrow an average of £73,396 at 3.60%. The lowest average the applicant could get would be £40,650 at 2.93%, and the maximum would be £90,000 at 6.32%.

Medically enhanced plan

Now, there are instances where you can release more. That is usually achieved through a medically enhanced plan, where a company considers your general health. Typically, the poorer your health, the more you can borrow. For example:

  • The 60-year-old applicant from the previous quote could borrow up to £123,750 at 5.60% through the medically enhanced plan.

Note that the company will determine the amount available according to the severity of your condition. Therefore, it’s likely that your quote will differ significantly.

Home Reversion Plan

The other type of equity release scheme available is home reversion plans. Unlike lifetime mortgages, you sell either part or the entirety of your home to the company for a much-reduced price. In return, you receive a lifelong lease that allows you to remain living at the property until you pass away or go into full-time care.

Typically, most companies will allow you to sell between 25% and 100% of your property. There are also scenarios where you may choose to pay a small monthly rental fee to receive more for your home. Since you retain the right to live at the property for life, rent-free, the price paid for the house will be much lower than the market value, so ensure that this is the best way for you to obtain funds over other traditional routes.

How much does it cost?

Suppose the 60-year-old applicant decides to go for the minimum available of £40,650 at 2.93%, and the plan lasts for 25 years (300 months). Then, the funds obtained from the property sale will have to cover a final bill of £84,488. That figure includes the initial loan plus the interest that rolled up over the 25 years.

In this instance, the interest ended up costing more than the loan itself. Therefore, it’s essential to know precisely how much money you need to avoid facing high-interest payments. If you’re concerned about the interest, you can always opt for the interest-only repayment option, enabling you to stay on top of the loan cost over time.

What are the benefits of equity release?

The funds you receive from the equity release are yours to do as you please. Many people use this to get enough funds to cover a deposit on a second property or help supplement their retirement costs. Equity release is a fantastic solution that gives you an extra layer of financial security should you end up needing more money later in life.

What should I consider about equity release?

To get a successful deal, it’s essential that you do thorough research and get as much financial advice as possible before signing a contract. You should also discuss it with your family, especially if you have anyone dependent on you. Once you pass away, the property can no longer be used by your loved ones. You should consider all the common equity release pitfalls before signing a contract.

Finally, you should consider whether equity release is the best financial solution to give you access to funds. A financial advisor might guide you to other tools that might be more favourable in your particular case.