There are many alternatives to Equity Release, which I always explore with clients. These include: Selling assets, remortgaging, asking for help from family and friends, grants, moving to a cheaper home, state benefits, renting a room, budgeting, changing employment, or simply doing nothing.
Home equity loan
Similar in structure to your primary mortgage, this option could make sense if you don't want to refinance that loan. With a home equity loan, you borrow against the equity in your home and receive a lump sum of money that you have to pay back each month within 15 years.
Equity release plans provide you with a cash lump sum or regular income. The "catch" is that the money released will need to be repaid when you pass away or move into long term care. With a Lifetime Mortgage, you will owe the capital borrowed and the loan interest accrued.
In return you'll get a lump sum or regular payments. You'll normally get between 20% and 60% of the market value of your home (or of the part you sell). When considering a home reversion plan, you should check: Whether or not you can release equity in several payments or in one lump sum.
Loan payment example: on a $50,000 loan for 120 months at 3.80% interest rate, monthly payments would be $501.49.
A home equity loan is a type of second mortgage that allows you to borrow against your home's value, using your home as collateral. A home equity line of credit (HELOC) typically allows you to draw against an approved limit and comes with variable interest rates.
Debt consolidation
Homeowners sometimes use home equity to pay off other personal debts, such as car loans or credit cards. “This is another very popular use of home equity, as one is often able to consolidate debt at a much lower rate over a longer-term and reduce their monthly expenses significantly,” Hackett says.
With an equity release plan approved by the Equity Release Council, you can make partial, or full repayment whenever you like. Some plans allow you to make payments without charges; however, some plans will require you to pay additional fees.
What's the difference between equity release and a lifetime mortgage? Equity release enables homeowners to retain the use of their home while obtaining an income or funds from it. A lifetime mortgage is one of the two main types of equity release products, the other being a home reversion plan.
One of the great advantages of equity release above traditional mortgages or retirement interest-only (RIO) or retirement mortgages is that the lender doesn't consider your income or expenditure.
It's possible to use a home equity loan to pay off your mortgage, but you'll want to make sure it's the right move for you. ... You can borrow enough to pay off your first mortgage. The home equity loan interest rate is lower than the rate on your first mortgage.
Depending on your financial history, lenders generally want to see an LTV of 80% or less, which means your home equity is 20% or more. In most cases, you can borrow up to 80% of your home's value in total. So you may need more than 20% equity to take advantage of a home equity loan.
Home improvement
Perhaps the most frequent use of home equity is to use it to improve the home itself. This can be a very good thing, akin to using dividends from stock holdings (or interest) to re-invest and build the value of an asset.
From application, to underwriting, to closing, the whole process for a Home Equity Loan typically takes about 2 weeks, while refinances could take up to 60 days.
The truth is that home equity loan approval can take anywhere from a week—or two up to months in some cases. Most lenders will tell you that the average window of time it takes to get a home equity loan is between two and six weeks, with most closings happening within a month.
On a $200,000, 30-year mortgage with a 4% fixed interest rate, your monthly payment would come out to $954.83 — not including taxes or insurance.
In the first year, nearly three-quarters of your monthly $1000 mortgage payment (plus taxes and insurance) will go toward interest payments on the loan. With that loan, after five years you'll have paid the balance down to about $182,000 - or $18,000 in equity.
To figure out how much equity you have in your home, subtract the amount you owe on all loans secured by your house from its appraised value.
The equity release lender will usually expect that any law firm being used for the equity release application, must have at least 3 or 4 actual lawyers/partners in the firm. This requirement means that your regular local solicitor may not be acceptable.
Yes, it is possible to be refused equity release. This is because there are key criteria that need to be met, in order to make your application suitable and appealing to a potential lender.
What is a lifetime mortgage for over 60s? Equity release is a form of mortgaging or remortgaging that allows homeowners aged over 55 to release equity from their homes by taking out a tax-free cash lump sum. An equity release mortgage can help you put aside funds for retirement or buy a second home.