When thinking of equity release, it is natural to ask “what is the maximum I can borrow?” For many people the amount available to borrow can be a major deciding factor as to whether they should pursue equity release or explore another avenue of finance. However, there are other considerations which should be given some thought in order to be sure that you are making the right decision for your circumstances.
What is the Maximum I Can Borrow?
There are a number of online and free equity release calculators which can answer the question of “what is the maximum I can borrow”. This figure will be based on the age of the applicants, gender, value of the property, amount of outstanding mortgage secured on the property and in some cases the health condition of the applicant(s). This information will be used to calculate the anticipated duration of a lifetime mortgage. You should expect to release between thirty and fifty per cent of the value of your property, depending on your particular circumstances.
When “What is the Maximum I Can Borrow” Should Not Be the Only consideration
Although the maximum amount may be important for your financial requirements, it may not necessarily be the best idea to opt for a plan which offers the maximum possible release. There are a number of occasions when it can be more beneficial in the long term to consider another alternative. This includes:
- If there is a more attractive interest rate: The interest on a lifetime mortgage accrues and is compounded onto the loan balance, since there are no monthly payments to balance this. Although some schemes may offer you a larger amount, it may be at a higher interest rate. Even a one per cent higher rate can have a dramatic effect on the balance of your loan in the long term. It is calculated that the balance of an equity release loan will double approximately every eleven or twelve years. While you may gain an additional few hundred pounds in the short term, it could cost thousands in the long term.
- When you don’t need all the money initially: If you have an immediate need for the funds, you may be interested in obtaining as much as possible. However, if you are asking “what it the maximum I can borrow” to simply get the best deal, there could be a better alternative. There are a number of equity release products which can present a better deal in these circumstances. For example, draw down lifetime mortgages. These offer a draw down facility rather than providing a lump sum. This allows you to draw down funds as and when you require them. Not only can this prove beneficial for those who may lose their eligibility for means tested state assistance, but you will only begin to accrue interest on the funds which have been drawn down. This could save you a great deal of money in the long term.
Factors Which Affect “What is the Maximum I Can Borrow”
The amount of equity in the property is one of the primary considerations for a lender. This is the value of your property less any existing mortgage. However, there is a very specific loan to value ratio to which the lenders will adhere. Simply because you have the equity sum in your property, does not mean that you will be able to borrow this amount.
Generally, the age and gender will be deciding factors for the amount of money borrowed through equity release. These are used to estimate life expectancy based on average trends. However, there are a number of companies offering enhanced deals for those suffering from poor health or a terminal condition. In these cases, the company will consider the impaired lifespan of the applicant and may release additional funds. In these cases a person in poor health can receive a far larger sum than someone of the same age and gender but in good health.
Generally, “what is the maximum I can borrow” is not a good starting point for an equity release. It is better to consider how much you actually need for your plans. This will enable you to be more objective about the specific plans when deciding which is best suited to your needs. Equity release calculators can provide the maximum amount which you would qualify for, but if this sum is in excess of your requirements, you may be best speaking to your specialist adviser or broker about the possibility of a draw down lifetime mortgage. This will enable you to have the funds you require with a reserve, should you need it later.