What is Release Equity?
Release equity allows you to access a portion of the money tied up in your home without having to sell it. This can provide financial flexibility for various needs:
- Funding home improvements: Upgrade your kitchen or add an extension
- Consolidating debts: Pay off high-interest loans for smoother finances
- Supplementing retirement income: Enjoy your golden years with more financial freedom
- Making significant purchases: Fund major expenses without liquidating your home
How to Calculate Release Equity
The formula for calculating release equity is straightforward:
[\text{Release Equity} = \text{Total Equity in Home} \times 0.85]
Where:
- Release Equity is the amount you can potentially access
- Total Equity in Home is your home's market value minus any remaining mortgage balance
- 0.85 represents the typical maximum release ratio (85%)
Steps to Calculate
- Determine your home's market value: Get an appraisal or check comparable sales
- Calculate total equity: Subtract your remaining mortgage from the market value
- Apply the formula: Multiply total equity by 0.85
Calculation Example
Let's say your home is worth $300,000 and you owe $230,000 on your mortgage.
Step 1: Calculate total equity:
[\text{Total Equity} = 300{,}000 - 230{,}000 = 70{,}000]
Step 2: Calculate release equity:
[\text{Release Equity} = 70{,}000 \times 0.85 = 59{,}500]
You could potentially release up to $59,500 from your home equity.
Important Considerations
Before releasing equity, consider:
- Impact on inheritance: Releasing equity reduces the value you leave to heirs
- Interest accumulation: Equity release products often have compound interest
- Benefits eligibility: May affect means-tested government benefits
- Property value risk: If home values fall, you could owe more than the home is worth
Always consult with a qualified financial advisor before making equity release decisions.