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How much can I release?

For those nearing retirement age and looking for some extra funds, equity release is a great way for you to make money off of your home while still being able to live in it. If you are a homeowner over the age of 55, you may be able to qualify for a home equity release loan. Read on to find out how much equity you can release from your home and how to go about doing it.

What Is Equity Release?

Equity release allows those over the age of 55 to get money from their homes. Given that homes are generally the most valuable asset a person owns, it seems like a no-brainer for homeowners to try and get some cash out of them. Of course, this is the reason that equity release loans are becoming more and more popular. Equity release can allow homeowners to garner significant and non-taxable funds that may make a huge difference in times of economic strife.

How Much Equity Can I Release?

The average amount of equity that a homeowner is able to release from their home can range from about 20% to 50% of the property’s value. Some things that can affect the overall percentage you receive include how valuable your property is and how old you are.

The older the homeowner is and the more valuable the property, the more equity they are typically allowed to release from their home.

1. The Shorter Your Life Expectancy, the More Equity You Can Release

Another thing that can come into play when determining how much equity you may release from your home is your overall health. The shorter your life expectancy is, the more equity you are typically able to release. Of course, if you have a co-signer on your home equity release loan that is in better health than you, their health will be used to determine that amount of equity than can be released instead.

2. You’ll Make Less Than Selling Your Home, but You’ll Get to Stay There

As with any other type of mortgage or loan, the decision to release equity from your home shouldn’t be made without first knowing what you’re getting into. Equity release can provide you funds now, but they will need to be paid off in the future by your home’s value.

As well, equity release will typically provide you with less money than selling your home outright, although you’ll still be able to live there. Still, if equity release is your best option, it is always going to be a good way for seniors in need to get some quick and non-taxable funds.

3. Is There a Minimum Amount of Equity I Can Release?

While the maximum amount is typically going to be 50% of your property’s value, as stated, the minimum amount isn’t always set in stone. However, most lenders are not interested in loaning out smaller amounts, as they don’t stand to make enough of a profit off of them. Usually, the smallest amounts of equity released from a home are still well over 10% of the property’s value.

4. Is Equity Released from My Home Taxable?

One of the best things about releasing equity from your home is that the cash you receive will not be taxed like typical income. This means that you get the exact amount you release, and none of it goes anywhere else besides directly into your pocket.

However, the funds you receive will still be susceptible to interest, which could very well prove to be just as financially draining as taxes in the long-term.

How Do I Release Equity from My Home?

Although equity release is referred to as a type of loan or mortgage, it differs from most other loans and mortgages by requiring no monthly payment from the borrower. Instead of traditional monthly payments, the loan is paid off once the property is sold, typically after the death or hospitalization of the homeowner.

If there are multiple residents in a home who both signed off on the equity release, the loan will typically not be paid off until both parties are either dead or in long-term care.

How Do I Qualify for Equity Release?

So long as you are over the age of 55 and are a homeowner, qualifying for equity release shouldn’t prove to be that much of a challenge. You should compare rates from different mortgage companies to find the best deal, and, if possible, seek advice from a third-party consultant who can help you get the most equity from your home possible with minimal amounts of interest.

Before your application for equity release is accepted, your home will need to undergo an inspection at the behest of whatever mortgage company is going to put up the loan. Oftentimes, homeowners will inquire with a solicitor before signing any paperwork in order to ensure that they are getting a fair shake.

Are There Any Limitations on Funds Garnered from Equity Release?

If you qualify for an equity release loan, there are no limitations as to what you can or can’t do with the money you receive. While it is common for homeowners to release equity from their homes and use it for frivolous things, homeowners are best advised to use any cash they release from their homes responsibly, as it could prove to be their only option in a dire situation.

1. Save Equity Release for When You Need It

For many, equity released from their homes provides massive financial relief after retirement, when funds might otherwise be tight. If you already have money set aside for retirement, you may opt to use equity from your home to make home improvements, such as landscaping and new additions.

However, many only see equity release as a last resort and would prefer not to release any equity from their homes unless they truly have to.

2. Can I Release Equity from My Home If There’s an Outstanding Mortgage?

While you are not prohibited from releasing equity from your home if you already have an outstanding mortgage on it, you will be required to use a portion of the funds you receive to pay off the mortgage. This may be off-putting for some, but it can actually be beneficial for homeowners who might save money by paying off their mortgage early. Of course, you will then still be accruing interest on your home.

3. Can I Release Equity from My Home More Than Once?

If you are a homeowner who has already released some amount of equity from your home, you may still be able to release a greater amount should the need arise. If you talk to your mortgage provider, they may be able to rework your loan with different, and possibly better, terms, allowing you to garner an increased amount of funds from your home on top of what you’ve released.

Of course, the money is never free, and the more you release, the more it will cost you in the long-run. For those who expect they may need a prolonged supplement to their retirement income, there are also “drawdown lifetime mortgages”.

These loans will function similarly to traditional equity release plans, or lifetime mortgages, except funds, are delayed over time in smaller increments after an initial larger amount.

How Will My Family Be Affected?

Equity release loans always include a firm guarantee that any outstanding amounts will never exceed the value of a given property. While that means that releasing equity from your home won’t leave your loved ones in financial debt after you pass away, it could still leave them with next to nothing in terms of inheritance.

Many homeowners predict that the rise in property values will cancel out any loss as a result of interest on released equity, but that is never a guarantee.

As with any other type of loan, the decision whether or not to release equity from your home is a tough one, and one that shouldn’t be made lightly. However, if you require fast and easy funds right now, there are few better ways for homeowner’s nearing retirement age to supplement their income while still retaining their home.

Alternatives to Equity Release

Since releasing equity from your home is often seen as a last resort, readers might be curious to learn about other ways they may be able to afford life after or nearing retirement. Of course, the greatest way is to try and have some retirement funds already saved up, but sometimes that’s easier said than done.

If you don’t have any investments or savings that you can cash in on when your traditional funds start running dry, it may be time for you to think about moving into a cheaper neighbourhood.

Instead of releasing equity from your home to continue paying for it, you may choose to simply sell your home and move into a retirement community. There are many independent retirement communities that will allow you to live just as freely as in your old home while keeping better within your means.

As well, as we previously discussed, you stand to make more money from your home selling it on the open market than you would via funds from releasing its equity.

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