How do you calculate equity release? To calculate the maximum loan available on an equity release plan, you require the age of the youngest homeowner and the property value. All lifetime mortgages that we recommend meet the Equity Release Council Standards and afford you extra protection. It is a calculation based on numbers provided, which are in themselves inconsistent, and the Rule of 78 formulae provided in the Consumer Credit Act of 1975.Throughout this guide, we will focus on the most popular form of equity release, the lifetime mortgage. Those people who have a repayment mortgage over 25 years are often surprised at the large proportion of their monthly payment that is interest and the small amount of capital which is paid in the early years. So although you are 30% of the way through the loan You are not rebated the other 53.5% of the interest. You are actually rebated about 46.5% of the interest I will take I to be ВЈ7000 for the purpose of this calculation Then add two to 36 to get 38 months thus the number of months remaining when calculating the interest rebate m will be 120 - 38 = 82 Let us carry on regardless and being aware that I will produce a 'ball park' figure based on insufficient information.ДЄfter 3 years you will have made 36 payments of ВЈ189 So an additional ВЈ680 has found its way into the calculation. The Total Repayment is 120 months at ВЈ189 = ВЈ22680 You say that the amount of the loan was ВЈ15000 It acually confirms that the redemption figure is likely to be spot on in so far as one can judge on the basis of incomplete information. I will not go into the mathematical details here. You may be surprised to hear that the redemption figure in the first few months of a long term loan can exceed the initial amount borrowed. The rule of 78 has survived so far for 30 years. Since the Consumer Credit Act of 1975 has been in force it has been subject to a number of revisions and updates. I get a slightly different figure if I only take one extra month rather than 2. My calculation is based on the use of the Rule of 78 taking the 2 extra months allowed by the Consumer Credit Act. Not a calculation of your actual loan but how I would have calculated the redemption figure if I was to lend you money as follows.Д¦0 payment of 140 required in 60 months ВЈ8400 This is not financial advice nor is it legal advice.ДЄ calculation based on not being in possession of all the facts. Without the rule of 78 lenders will not be so ready to lend to non status borrowers. The Consumer Credit Act has tried for nearly 30 years to offer a compomise which is acceptable to both the lender & the borrower. In any other area of activity this would be breach of contract and the repayment of the loan would be legally enforceable. The customer signs up for a Fixed Rate Loan and then wants to call it off early. This may result in amendments to the Act.ДЇor what it is worth, nothing you may well think, my view is that the legislation to alter the Consumer Credit Act will not be enacted before the next general election and even when and if it is altered the Rule of 78 may well remain. The rule of 78 is set out in the Consumer Credit Act of 1975.ДЄ review of the Consumer Credit Act has taken place recently. Rebated on early redemption with 2 months added is about 46.5% of the initial total interest due. If you are 3 years into a 10 year loan then the interest The total interest to be paid, I, should be set out clearly on the loan agreement Now Tesco can claim two additional months The months remaining, m, is 120-36 = 84 months ( 7 years ) If you are three years, 36 months, into the loan So as an example in this case n = 120 months. Where m is the number of months of the loan remainingДЄnd n is the total number of month of the loan. If the total Interest Due on the loan over 10 years is I They do not have to use the Rule of 78 if they are willing to do better than the Rule of 78 requires. The Rule of 78 calculation is the harshest way a lender can claim interest. If all you have to do is pay an extra two months interest you will be laughing as compared with if you add two months to the time you have actually held the loan for AND then they operate the Rule of 78 on the rebate of interest.

Rule of 78 loan calc