Equity release helps elderly homeowners turn the equity that is inherent in their property into tax-free cash. In the UK equity release examples include; a lifetime mortgage and the home reversion plan. There are also other types of equity release schemes available on the market but these two are the most common equity release examples in the UK.

So let's have a look at these equity release examples a bit further. A lifetime mortgage is a loan that requires no regular repayments to the lender. The lender issues the long to the borrower either as a lump sum or as regular income. The loan and the interest is repaid when the property is sold.

LIFETIME MORTGAGE EXAMPLE

In this equity release example the person is aged 60 and owns a property that is worth £100,000. This particular homeowner would like to borrow £25,000 at an interest rate of 8%. For such a case the interest is compounded and rolled over as shown in the example figures below: As you can see below the client will owe just under £54,000 by year 10.

Opening balance         £25,000                                   End of year 6                £39,672
End of year 1                £27,000                                   End of year 7                £42,848
End of year 2                £29,160                                   End of year 8                £46,274
End of year 3                £31,493                                   End of year 9                £49,976
End of year 4                £34,012                                   End of year 10             £53.974
End of year 5                £36,733

As a general rule of thumb you can estimate that the amount you owe were generally double up every 10 years due to the rollup effect of compound interest.

If we make the assumption that this client is a male with a life expectancy of 80 years (and 84 years for women) and that the client lived for another 20 years than the amount of money owed will be £116,526 and he will have no equity left in the property.

HOME REVERSION PLAN EXAMPLE

Now let's look at an example of a home reversion plan. Again if we assume the house value in this example to be £100,000 and the client is a male wishing to borrow £35,000. Now let's assume that the equity release company takes a stake of 60% in the property in return for the £35,000 borrowed. In such a case the client will not have to pay anything and he could continue to live in the property until he dies or until he's taken into permanent care. When the property is sold the client will have his 40% share of the property which will go to his estate

With both of these plans the homeowner stays in the house indefinitely until they die or vacate the property for reasons such as long-term care.

The use of the funds raised from equity release schemes is entirely up to the borrower. There are no limitations from the lender and the funds can be used for any of the following reasons as an example:

- purchasing assets such as a car
- spending the money on leisure activities such as holidays and travel
- repairs and maintenance of a home
- increasing income to support the cost of living such as private health insurance
- payback existing debts
- meeting the cost of long-term care
- using the money to invest in further ventures to increase your income
… and any other personal reasons

The above points are common examples of how equity release is used by homeowners to raise extra capital to add to their personal finances. One point to note is that since the home is regarded as a tax-free asset any equity that you release from your house is considered tax-free.

Equity release is now being regarded as a genuine way of raising income to further boost your finances. Many people were property rich but cash poor are realising that equity release is a way to convert the equity to cash. This is especially true when globally the government provided pension schemes are not meeting the financial requirements of the elderly. With the cost of residential care rising continuously equity release schemes seem to be the answer for some people. Governments around the world are realising the importance of equity release schemes in addressing the costs associated with an ageing population.

If you would like to see equity release examples then contact us and we will be happy to talk through illustrations of the different equity release schemes that are on offer currently. We will help you pick a plan to fit your financial needs by offering independent advice so that you are fully aware of the different options available to you. So whether you are at early stages of researching equity release schemes or you have made up your mind that this is the route you would like to take to release extra capital then contact us to get started on the way forward