Examples of How Equity Release Schemes Work in 2024

equity release example

When finances become tight or more cash flow is desired to help pay bills or make larger purchases easier, some homeowners will consider the idea of using an equity release scheme to free up some of the value in their property.

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Although several different resources explain how these schemes work, the best way to understand the advantages, disadvantages, outcomes, and how the process really works is to examine some real-life examples of families who have gone through it.

Equity Release Examples

Case Study #1 – Mr. and Mrs. Bradford equity release example

Gerald and Betty Bradford are a married couple who are both 70 years of age.  The couple lives in a three-bedroom bungalow in a waterfront area where they very much enjoy living. The couple brings in a comfortable income but does not have access to much capital since most of their savings were spent to purchase their home.

The bungalow was purchased just over 15 years ago, and the couple paid £93,500 for the property. It is currently valued at £200,000, an almost 115 percent value increase over the years.
Although the couple is very happy in their home, they are interested in adding a conservatory to the back portion of their house, which will overlook the garden and make a great seating area for relaxing and entertaining friends.

Another idea they would like to explore is possibly going on a cruise vacation or two – many of the couple’s friends have been on cruises and always express how much fun the trip is and all of the wonderful parts of the world they were able to explore while on the cruise ship.

Gerald and Betty have gotten quotes for both of their projects: the conservatory, with all the needed additions, including labour, underfloor heating, paving, blinds, and furnishings, and the price for the two of them to enjoy their first cruise with their friends on the Norwegian Cruise Line vacation.

The conservatory will cost them approximately £18,000, and the cruise will cost them £1,000 each. Thus, the total amount needed to complete their desired projects comes to £20,000.

The couple has decided to release the £20,000 needed for the projects using a lifetime mortgage from a well-known lender. They also decided not to make any monthly payments and are aware that the remaining interest will be “rolled up” into their existing mortgage, meaning the money they owe will double every 10 years.

By the time Bradford turns 80, the £20,000 they borrowed and the rolled-up interest will amount to £40,000 with a 7.5 per cent APR.

Even with the £20,000 in equity doubling within ten years, the amount they borrow will still be less than the property’s overall value, especially when they add the conservatory. Gerald and Betty also like that they have the option to “drawdown” further funds up to £40,000 should they need or want to go down the road.

This means that if they decide to spend more time vacationing, they can enjoy more cruises throughout the years.

Another benefit of the drawdown option is that the Bradfords will only be charged interest if and when they withdraw funds from their cash reserve facility and that the minimum amount they could withdraw was as low as £2,000, making it easier for them to manage their drawdown lifetime mortgage effectively.

With this option and plan in place, Gerald and Betty could complete both projects on their wish list while still properly managing the value of their property and finances.

Equity Release Example Case Study #2 – Mr. and Mrs. Engleman

Albert and Eve Engleman are 70 and 72 years of age, respectively, and are both retired from their given careers. The couple lives with a comfortable income and has a surplus of funds in which they have no desire to make any large purchases or renovations on their current home.

Their home is located in an area that Albert and Eve enjoy living in because it is close to the local shopping centre and town and has easy access to the public transport system. It is currently valued at £230,000.

The Englemans’ original mortgage terms were due to end at the same time the couple retired, and by then, their endowment plan had not matured enough to clear all of the outstanding balance. This left the couple still owing the mortgage company £20,000, but they were able to negotiate to extend the mortgage term so it would expire when Albert reached the age of 85.

Unfortunately, the mortgage remained interest only, meaning they will not be paying off any of the actual balance of the loan.

Although the couple has managed the monthly payments without any issues, they are growing concerned about not being able to pay off the mortgage’s principal balance by the time the extended terms end. They have two grandchildren, Melissa, who is 25, and Mark, who is 19.

Melissa is trying to purchase her first home and is concerned about not being able to afford the mortgage while Mark is away at college and is worried about the amount of debt he will be in upon graduation.

The Englemans have decided that it is time to start dealing with their personal debt and, since they have no desire to spend money on themselves, set Melissa and Mark up for financial success. For them to pay off their existing mortgage, it will cost £20,000 – to help with a property deposit for Melissa, it will cost £15,000 – to help pay off Mark’s student loans, it will cost £15,000. This brings Albert and Eve’s total funding needed for the projects to £50,000.

After some research, the Englemans have decided that a lump sum lifetime mortgage will meet their needs. Since they can comfortably afford the interest payments on their existing mortgage, they would prefer to pay the interest with an Equity Release Lifetime Mortgage.

The lump-sum lifetime mortgage will give them the £50,000 they need with an APR of 7.5 per cent and help to remove their existing mortgage, Melissa’s new home, and Mark’s student loans so he did not have bad credit for a default.

Check out the equity release council which has more examples of equity release.

It’s a loan.  You don’t make any monthly payments.  The interest rolls up each month and adds to the loan.  The loan gets much bigger over time.

The reality of the compound interest mounting up.

You pay back the money you borrowed, plus the compound interest which is added on.

The reality of compound interest mounts up.

It’s basically a debt secured on your home.

Its a loan you pay back when you die or you go into long-term care, and then your house is sold.

With a free valuation, it costs nothing.  It just takes the debt from your home when your home is sold.

You can get an RIO retirement interest-only mortgage if you want to pay the interest.

Some lenders require a valuation fee, a solicitors fee, a lenders fee, an advice fee, a transfer fee and a product fee.