Quick House Selling Information For November

Delving into Equity Release

You may have heard the term equity release or a home equity mortgage.  You should note that there is a difference between the two.  The difference is that an equity release mortgage is only available to those who have retired, and in most cases to those who have paid off their existing mortgage. A home equity mortgage just allows you to get the equity you have in a home out with a second mortgage that requires interest payments and a monthly payment.

This is another difference between the two.  An equity release mortgage is going to offer tax free cash to you as well as an interest free loan that doesn’t require a monthly payment.  The thing about an equity release is that you do not pay back the amount you owe until your death or until the home is sold.  The amount of the equity release can be to total amount of equity you have in the home.  Most lenders are going to keep this amount below the loan to value though.  In other words with a mortgage of any kind you have the potential to have a 100% of the value of the home awarded in a mortgage.  Of course a smart individual is going to realize this is a bad idea as this means there is no equity left over, in case of an emergency or other needs.

The same can be said for an equity release.  Most often you are going to find that the bank is unwilling to loan more than 75% of the loan to value for a number of reasons.  One reason is that the bank wants to ensure of getting their money back after the sale of the home.  Since values of homes can either increase or decrease the lenders want to make sure they have some room.  You will want to make sure that you have left enough of difference so that when the home is sold or offered to the heir that they are not financially squeezed.  The thing about equity releases is that after your death the amount is required to be paid back.  This means that your beneficiary either has to sell the home or pay off the debt. 

You currently have about 40 options in equity release.  The differences are going to be in the structure, the lending bank, and of course the terms of the loan.  Two of the options you have in an equity release are a continual payout or a lump sum.  With the lump sum you have asked the lender to provide you with one large payout that you can use for the duration of your life.  The drawback to this option is that you can only have one equity release at a time.  You cannot extend this plan without making some payment towards the old equity release or paying it off.  The second option means that you get a smaller amount in segments.  This is generally when you need the amounts to be released.  It can be a monthly or yearly basis, and you don’t have to take the full amount you have been awarded if you don’t need it.

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