How much equity should you release?
26 June 2019
There are two key factors to consider when you are thinking abut how much equity to release from your property:
- How much are equity release companies likely to be willing to lend you?
- How much money do you need to realise your dreams?
How much will equity release companies be willing to lend you?
This is the first question to ask, because it doesn’t matter how much you ideally would like to borrow, if you don’t meet the lenders’ criteria for that amount. The most significant factors affecting how much equity you are likely to be able to release are your age and the value of your property; the older you are, the higher the percentage of the value of your home lenders are likely to be willing to make available to you.
Our borrowing guide gives you an idea of how much equity you might be able to release. However, some medical conditions and lifestyle factors, such as smoking or being overweight, may qualify you for a higher amount, so please do call us to speak to an adviser if you think this might affect your application.
How much equity do you need to release to realise your dreams?
This is a more complex equation – the answer could be: how long is a piece of string?! However, you don’t want to release more than you need to be comfortable and achieve your key ambitions, as there are costs to borrowing and implications potentially in the longer-term, for example if you need to fund care, or for your heirs. Asking yourself the following questions will help you work out the sort of sum that would help you realise your dreams:
- Do you have an existing mortgage to pay off? If so, how much is it?
- Can you comfortably pay your regular bills each month? If not, how much additional income would you need each month to feel confident about meeting your routine expenses?
- Are you able to take unforeseen expenses in your stride? If not, how much of a buffer would you like to have each year to enable you to pay for things for which you hadn’t planned?
- Do you want to help friends or family? If so, how much would enable them to realise their dreams? Where would this leave you financially?
- Do you want to carry out home or garden improvements? If so, how much will they cost?
- Are you considering paying for medical treatment to improve your quality of life? If so, what is the total cost of this treatment, including after care?
- Do you need help to enable you to continue living in your own home? If so, how much does this cost? How much might it cost of you were to need more frequent or longer home-care visits?
It is unlikely that all of these issues will apply to you, but thinking about your needs now and in the future will help you understand your financial situation and how that might change, and the role that equity release could play in helping to ease this.
Balancing short-term and long-term financial needs
It may be that you are considering equity release as you want to carry out home or garden improvements straight away, but you are also aware that in the longer-term you may have additional living costs, such as support to carry on living in your own home. Or you may not be sure what you want to achieve in the medium and long term, but you may want a bit of flexibility, so you don’t feel you have to gaze too deeply into your crystal ball now.
Some Lifetime Mortgage providers offer a drawdown facility, meaning that you don’t need to take all the equity in one go, but can release it as you need it. This reduces the total debt on the loan as interest only accumulates on money you have already drawn down while also giving you flexibility if you don’t feel you can answer all the questions at the moment.
Working out how much equity to release from your property is a delicate balancing act – and one which our expert equity release advisers are adept at guiding our clients through.