Equity release is a broad term which refers to a whole array of financial products which enables people to access the equity stored up in their house. The equity release package usually involves loans. Such loans are secured against the equity in the borrower’s property. Hence, the loan becomes a mortgage in disguise. This is one reason why the equity release tends to be popular with people who are in dire need of extra cash.
In simple terms, equity release works like a reverse mortgage. However, it is a little different from a reverse mortgage because with an equity release, homeowners can borrow against the equity stored up in their houses without needing to sell or transfer the ownership. This makes these loans much easier to qualify for by the younger generation of homeowners in the UK. Usually, the maximum amount of money that can be borrowed using an equity release loan is around five to ten percent. Homeowners have to remember that the amount they are able to borrow is dependent on the equity level in their house, their age and their earnings.
The good news is that these loans are easier to get than traditional mortgages. The bad news is that applying usually requires evidence of the homeowner’s regular income. This means that prospective borrowers may need to offer higher interest rates than other mortgage applicants. This is because equity release providers often charge higher interest rates in order to attract more customers. As such, if you are looking to get a reverse mortgage from an equity release provider, then you should make sure you have sufficient funds in the bank to cover the interest rate. In addition, older homeowners will find it difficult to secure a competitive interest rate.
As with any loan, borrowers have to be aware of the pitfalls. One of them is that they could consider taking out a home equity release loan even though they currently have a mortgage. By doing so, they would instantly remove a layer of security and the value of their house could drop. Of course, this is why there are capably sponsored schemes such as First Time Borrower’s Allowance or the Mortgage Payments Protection Scheme. However, it could also be possible to refinance one’s mortgage while still in the home and take advantage of the equity release schemes.
Another disadvantage of these schemes is that many homeowners believe they are easy to get, but they are actually not. In general, people who want to get an equity release should do their research and find out which lenders are willing to give these schemes a go. There are a number of specialist websites that cater for potential borrowers and lenders, and some of these even offer free quotes. They allow the individual to compare the different offers from a range of lenders and then choose the one that gives them the best deal.
It is also a good idea to check whether the equity release in the UK provider will be at a lower rate than a standard mortgage when taking out the loan. There are several lenders that can provide home buyers with mortgages with a percentage of the cost of the property. However, some mortgages providers now offer loans with no stamp duty or additional monthly fees. In order to make sure that any equity release in the UK scheme is not at a higher rate than a standard mortgage, it is advisable to take out a mortgage broker service.