Equity and Equity Release Schemes

Equity is one of the most common concepts that is used in the fields of accounting and investment. In the simplest terms, equity is defined as the ownership of a portion of a specific business. This can equate to either stocks (as in an investment) or the controlling interest (in the form of partial or complete ownership). However, there are other uses for equity that individuals can employ to provide some much-needed liquidity into their lives. One method is commonly referred to as an equity release. Let us look at equity release schemes in a bit more detail.

From an Individual's Standpoint, What is Equity?

Normally, an individual will hold a certain amount of equity on a home; that is, the portion of the property that has already been paid for out of a mortgage. For example, an individual who owns a house that is worth one hundred and fifty thousand pounds in combination with a fifty thousand pound mortgage is said to have one hundred thousand pounds worth of equity. Thus, tapping into these funds can prove quite valuable for those who have a pension that may fail to cover monthly expenses.

Equity Release Schemes: When Should They Be Considered?

Not everyone will benefit from these schemes. Most importantly, such plans should only be employed in times when extra liquidity is not possible. If this is indeed the case, the homeowner will be able to borrow (on average) approximately fifty per cent of the value of the equity that they have in a home. This will depend upon the home's worth as well as upon the age of the borrower. Younger individuals will generally have the amount of equity release funds capped well below fifty per cent.

The best way to determine if such a programme is the ideal choice is to make use of an equity release calculator. This tool will take into account the value of a property alongside either the age of the youngest borrower (in the case of a couple, for example) or the amount of income that is derived from a pension plan.

Choosing the Right Lender

As with any financial lender, not every institution will offer the same levels of service. The first variable that should be addressed is the amount that they are willing to release from an equity scheme. All terms and conditions need to be made clear from the start. The company should also allow the customer to utilise an equity release calculator. Finally, the lender needs to be highly reputable and preferably, it should provide testimonials from previous clients.

Once again, some of the most important metrics that should be addressed are:
  • The amount of liquidity that is needed.
  • The limits provided by the lender.
  • The reputation of the company.
  • The ulilisation of an equity release calculator.

Understanding these concepts is important before undertaking any such scheme and it is for this reason that it is always advisable to speak with a trained professional.