The idea behind a reverse mortgage is that a homeowner may have an (estimated) amount of equity (over and above any pre-existing mortgage or borrowings) locked up in the value of their home.
To release this equity without selling the home the homeowner may approach a bank to arrange to release this equity in the form of an initial lump sum followed by regular monthly payments calculated at a specified rate of interest and for a specified term. The receipts are secured against the estimated equity remaining in the home.
For example, if the home is valued at 300,000 and has a pre-existing mortgage of 50,000 then there is 250,000 of equity in the home that can be released.
Therefore, over a term of, for example, 13 years at a fixed annual rate of interest of 4.5%, it may be possible for a homeowner to negotiate with a bank to provide an initial equity release of 50,000 followed by regular monthly equity receipts of 750 over the 13 years. This equity release would "cost" 246,209 which would be more than covered by the 250,000 equity referred to above.
The homeowner ought to have an idea of the equity remaining in the home and by varying the lump sum and/or monthly equity receipt requirements over different terms and interest rates (the "variables"), the homeowner can use the calculator to establish optimal equity release terms.
If any of these variables do not apply then enter "0".