Unlocking home equity can be a useful way to access funds based on the value of your home. The amount of mortgage you have outstanding impacts the amount you have access to, and there may be other limits depending on the type of scheme you opt for. However, using the funds for renovation, for example, can increase the value of your property. From unlocking certain loans to how equity impacts your future, here is what you need to know.
Aside from remortgaging and lending against assets, there are a few ways you can access the equity of your home. Of course, it begins with understanding what you have to work with.
Exploring survey and valuation services in your area can help you get a good idea of the value of the property so you can secure equity based on its value. For example, a home worth £150,000 with an outstanding mortgage of £70,000 has a potential of £80,000 equity.
A home equity loan provides funds with a fixed interest rate and one off lending fee:
A lifetime mortgage delays repayment until after death or moving into long-term care. However, the interest is added to the loan month by month, and the debt is settled when the house is sold at a later date.
You can sell a portion of your home to a company that will pay you a lump sum. You can stay at the property without paying rent, and you don’t pay back the money until the house is sold.
These schemes can be helpful, but they come with risks. Mostly, the risk is in the accrual of debt, which can add up quickly, reducing the home’s value and reducing future family inheritance.
Accessing the equity of your home through loan schemes is a good idea on paper. However, there is still some risk, mainly in how the debt can rise because of interest, and a loss of total home value.
Of course, there is never an absence of risk when accessing any type of funding scheme, especially when it comes to mortgages and properties. The biggest risk you face with some of these, no matter how useful, is losing your house. That could be a disaster that ends in foreclosure. While you can’t avoid risk, you can offset it somewhat. Obviously, ensure you have the ability to pay any loans you take out, and try not to take out the maximum available amount.
Even looking into one of these schemes is enough to make your head spin! There are so many terms, facts and figures that reading through them is tiresome and tedious. So what can you do? Fortunately, there are experts out there who can help you navigate the cold waters of financing. If you are unsure about anything, it is best to seek professional advice. When doing so, be aware of fees, though, and ask as many questions as you need to for the info you need.
The average homeowner who has already released equity from their property has seen a 7.5% average rise in home value over the past five years. However, equity release can have a major impact on property value, which can in turn affect your future finances:
Is there a good time or bad time to release home equity? The short answer is no, there isn’t. Everyone has a different situation, and there are so many variables that there’s no one-size-fits-all approach. The important things to consider are your personal needs and financial goals. Ask if you really need to, what you will use the money for and whether you can realistically afford it.
Understanding your home’s value is the first step to unlocking home equity. From there, you can make decisions regarding which equity release product(s) to consider.
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