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Many homeowners have a considerable amount of cash tied up in the equity of their homes – that is, the value of the amount of the home they own, less any outstanding mortgage or loan.

Not only is it possible to release that equity – to enjoy its present cash value – but more homeowners than ever before appear to be choosing to do so. This is a conclusion drawn in a story published in the Guardian newspaper on the 25th of January 2016.

During the course of 2015, a record 22,500 equity release agreements were made, representing a return to the nation’s homeowners of a total of some £1.61 billion.

How do I know if equity release is right for me?

Probably the single most informative source is an online equity release calculator. It might be the best step to gaining some idea of what equity there may be in your home that may be released, depending on the value of the property and your age (you need to be 55 or over to qualify for any equity release scheme).

Combine an equity release calculator with a comparison website which shows the various interest rates currently offered by equity release providers and you may get a pretty clear idea of whether to take things further. There is generally no limit on the number of times you may use the same calculator.

There are any number of such online calculators and it might be difficult knowing which one to choose. Some of the things to look out for when choosing one, therefore, might include:

• how much equity you might be able to release, the interest rates governing the various schemes on offer and what the impact is likely to be upon your estate;

• whether the provider is a member of the Equity Release Council – since this guarantees a certain number of safeguards built into any agreement; and

• whether the site providing the calculator also offers a detailed guide on how equity release works and the arrangements that might be made to answer your queries and discuss your concerns directly with any provider.

Types of equity release

Using an equity release calculator is only the first step in what is invariably a complicated process, involving very serious decisions about the home in which you live, the funds it might unlock and the impact any agreement has on the estate you may pass on to your surviving dependents and relatives.

This makes it important that you seek the advice and guidance of a specialist in the provision of equity release agreements and embark on a learning curve that might lead to your understanding of the two principal vehicles for equity release:

• home reversion – this involves the sale of a proportion of your home to the equity release provider, so that you become a co-owner, but may continue to live in the dwelling until your share of the property is sold upon your death or when you move into long-term care; or

• lifetime mortgage – this is probably a more popular arrangement than home reversion and allows you to make a more reliable calculation of the costs involved. A lifetime mortgage is similar to a regular mortgage, but you make no repayments on the advance, which continues to attract interest in the normal way. The mortgage is repaid from the sale proceeds of the property when you die or move into long-term care.

The use of an equity release calculator may be enough to set you off on the road to unlocking some of the wealth tied up in your home.

Traditional assets consist of stocks, bonds, or money. Individuals capitalize in such products with the expectation of capital appreciation, surplus on the original investment, and earnings on interest. For many years, people have been limited to financing only these asset products.

Alternative investments have created a broader field for individuals to capitalize in. This type of investment relies upon asset classes that have little to no correlation with more traditional forms of ventures.

Types of Alternate Financing

Private equity: there are a greater number of private corporations than there are public ones. These private companies tend to take on investor capital. Private equity firms are essentially ones that raise the necessary funds from a variety of investors. These resources will then be placed with favorable private corporations. The money is then returned to investors once an IPO or acquisition has taken place.

Venture capital: this is a division of private equity. Here the investment takes place among companies that are just beginning, before they have had a chance to grow. Venture capital firms gather funds from various groups. They then disperse these reserves to a variety of companies that are just starting out. This type of financing is usually more of a gamble. In the event that these start-up corporations succeed, however, the investors can expect an impressive return of their capital.

Hedge funds: these funds consist of a compilation of several investments. These are then placed in a variety of schemes and assets. The difference between hedge funds and private equity is that hedge funds will also place ventures with public companies. There is also more liquidity offered with hedge funds. This way investors have more access to their money and can withdraw it with greater ease. Some of the more typical hedge fund strategies are distressed investments, arbitrage, and macro-trends.

Advantages of Alternate Financing

The inclusion of alternative financing asset classes in a portfolio will greatly increase its diversification. This is because they have very little or no association with more traditional asset classes such as stocks. This means that your investments are less likely to be affected by the performance of the stock market. Thus, the inclusion of this type of investment reduces the overall volatility of the portfolio.

Alternatively, this type of investment has a good correlation with inflation. This property ensures that it serves well as a hedge against inflation. This indicates that it would provide a solid return rate on a long-term investment.

In certain instances, alternate investments can actually produce greater returns than traditional investment. One of the advantages afforded to this non-traditional form of investment is the wider range of financing opportunities. The investors can choose to invest in both public and private corporations. They also face less constraints and are subject to fewer regulations. This can result in better returns subsequent to long-term performances.

Typically, these types of investments have always been considered more of a risk than stocks, bonds, or cash. It is, however, this increased gamble that can ensure that the return against the venture is also impressive.

Home owners are able to cash in on the value of their property through an equity release scheme. They can do this without actually having to sell their property and find a new home. Two schemes exist to make this possible:

• Reversion schemes
• Lifetime mortgages

When you decide to release the equity of your home, deciding which option to go for is but one of many decisions you will have to make. This is why comparing equity release schemes is so important. You should seek not just financial advice, but legal advice as well. When you take money out of the value of your home, this could have a serious financial consequence and you have to be prepared for that.

Equity Release

Equity is surplus value in your property. A home that is worth £200,000 with a £100,000 mortgage has £100,000 in equity. However, equity release schemes aren’t available for anybody, but usually only to older people (over 55 for a lifetime plan and over 60 for a revision plan), who are unlikely to have a regular income.

Most people choose a lifetime mortgage. Here, you essentially take a loan out on the property, which remains yours. The debt has to be repaid when you die or go into long term care, meaning no monthly payments are needed. However, the interest does accumulate, which means you will owe a lot more than you originally owned. So, a £45,000 loan could turn into £152,387 after 25 years.

The drawdown version is the most popular lifetime mortgage. This is for those who don’t need a huge lump sum straight away. Instead, they can dip into a pot of money as and when needed. No interest is paid on the money that is not released.

The other option is the revision scheme. Only very few people use this. Here, you sell your home or part of it to a company, but you retain the right to live in that home. When you die or go into a home and sell the property, you only receive money on the percentage of the home you still own, which is often nothing. You also generally have to pay rent to the company that has purchased your home or part of your home from you.

Do bear in mind that releasing equity in your home can be costly. Usually, you will have to make at least a £1,500 fee and your financial adviser and solicitor will have fees as well.

What are the risks associated with private equity finance and how can investors be successful? 

Understanding Private Equity

Private Equity Finance refers to the initiative of raising capital from external investors and in turn rewarding them a share of the business.  It consists of equity shares of companies not registered and traded on a public stock exchange.  There are various ways of investing in private equity – leveraged buyouts, venture capital, growth capital, distressed investments and mezzanine capital.

Private Equity Finance: Risk Capital

Private Equity is often considered as “risk capital” due to its inherent nature and characteristics. In the case of private equity, operational issues make it hard to determine who ultimately is responsible for economic risk that arises out of a leveraged buyout.  These are the result of using increased complex credit derivatives. The chances of these derivatives not being confirmed in a timely manner is very high and this may lead to more amount being traded than underlying assets. Private equity finance is also considered a risk as a conflict of interest may arise between the responsibilities the firm has towards itself and the companies owned by the funds.  Private equity investors are faced with huge turmoil along their way and need to be more prudent while making, managing and exiting investments.  It is always important to have an entrepreneurial spirit when taking up such high risk ventures.  Private equity investors spend tremendous amount of their time and energy looking for good business investments and enable them boost their performance.  Entrepreneurs always believe in the concept of more risk equals more return! 

Successful Private Equity Investing

Private Equity Finance, with its inherent risk characteristics can be a successful venture by knowing what you’re getting into. It is essential to be in places where successful entrepreneurs are.  Success breeds further success, after all.  This will give investors valuable insights and gain knowledge of new companies. They are masters in their field and just being in their presence will enrich investors with a lot of information.  Developing an exit strategy is crucial to the success of private equity finance. The investor should have a liquidity event in place and make sure it brings rewards.  A very important aspect is diversification.  When there is effective diversity in the portfolio, small losses can be negated by higher profits in other investments and lead to long term success. With all these tips and insights, private equity finance can be highly rewarding for an entrepreneur, both as an investor as well as a business owner seeking investment yourself!

DealMarket’s online platform is meant to help the private equity world become simpler. Private Equity Finance can be successful if parties meet each other and close profitable deals. Powered by cloud-based technology, this onlie platform is considerably more efficient than using e-mail and Excel spread sheets.