Most people cannot afford to save any money from one month to the next; they have so many expenses they have to deal with that putting money aside for rainy days has become impossible. Property owners who already have a loan are advised to resort to professional mortgage advice before making any major financial decisions. Equity Release is a good solution under certain circumstances, but it is not for everyone.
What Should You Know about Equity Release?
As people have so many expenses and saving money is not an option for most of them, it makes sense to search for additional sources of income. Equity Release enables them to release some money from the value of their home and to continue living on their property.
This is a major financial decision and it is recommended to consider its pros and cons before deciding. The good news is that you do not have to sell your home to access a large amount of money. Such a scenario makes perfect sense for those who have paid off most of their current mortgage.
Releasing equity enables them to use a significant amount of money.
Why Is Professional Mortgage Advice Imperative?
How much information do people have about mortgages, interest rates, etc.? Such a loan is a huge responsibility and it impacts the finances of the borrower for a very long time. Professional mortgage advice is a necessity as it helps people become familiar with their options, the advantages and the pitfalls of each.
Taking a loan for a long period of time is not something that should be treated lightly; people have to make sure they find the most suitable product and they can repay the loan according to the contract they sign. Otherwise, they risk significant consequences. Talking to specialists in this field is recommended to form an accurate idea about the best option for a particular situation. When it comes to loans people have different situations and different requirements. What works for one does not necessarily work for another.
What Are the Main Types of Equity?
If you are serious about equity release, it is worth mentioning that you can choose a lifetime mortgage or a home reversion. The mortgage is the most popular product because it enables people to borrow the money they need in the form of a mortgage. The amount that can be borrowed via such a loan usually varies from 18% to 50% of the total value of the property. Usually, the older you are, the more money you can release.
As a consequence, the amount to be repaid grows with interest but it can be reduced by paying the interest faster. Some people qualify for an enhanced lifetime mortgage but this is the case for those with serious health conditions.
According to an interesting article in Forbes,"The most popular ways to access your home equity without selling the home are: Cash-out refinance, a HELOC or a home equity loan. All three work in different ways and have a different time period for when you receive the funding.
Keep in mind, these are financial products that help you tap your home equity for many needs—like remodeling your home or paying for a child’s college costs. However, you’ll still have to pay it back over time or via a lump sum if you sell your home. "
What Is the Home Reversion?
Specialists that offer professional mortgage advice will tell you that home reversion is a type of loan that enables you to sell all of your property or just a part, but you preserve the legal right to use your property for as long as you live.
Should you choose such a loan, you can receive all the money at once or a regular income each month, according to your requirements. It is important to understand that home reversion does not offer you the full market value of the property; the maximum you can usually obtain is around 60%. If you are older or in poor health, you will be able to get a larger amount.
What Are the Benefits of Releasing Equity?
When it comes to loans, people should weigh all of their options carefully to make sure that they do not have any regrets. This is also the case with equity release which offers borrowers a certain amount of money that they can spend as they please.
Property prices in the UK have increased significantly and this means that homeowners have invested most of their money in their properties. The smartest thing they can do provided the value of their homes has increased over the years is to release equity.
Is There Any Risk to Releasing Equity?
There is no such thing as a loan without a risk. For this reason, it is imperative to resort to professional mortgage advice and enjoy the advantages it brings. The most noteworthy drawback of equity release is that it does not offer borrowers the full market value of their property. Selling the property is a better option for those who want to receive a larger amount of money but it involves looking for another house to live in.
When Is Releasing Equity a Great Choice?
Releasing equity is recommended in various situations. If you would like to know whether you are a good candidate or not, you should consider the following:
- You do not have enough savings or sources of income to deal with all of your daily expenses when you retire
- You reject the idea of downsizing
- Reducing the inheritance of your family is not a problem
- You have resorted to mortgage advice and decided this is the best option for you.
Overall, equity release might be avoided when you have other sources of income, you can downsize and release money from your home or you would like to keep your inheritance intact for your family. Ultimately, the decision is yours but you should not take it without consulting a financial advisor first.