Equity is the difference between the current value of your house and the amount you owe on it. If you own your home, an equity release scheme could allow you to release some of the value of your home without having to make repayments during your lifetime, move out or sell your home on the open market.
The conditions of equity release include that you cannot have an existing mortgage on your home and that you have reached a certain age, for example 60, to avail of the loan. Equity release schemes are different to topping up or increasing your mortgage. Equity release schemes are not suitable for everyone, but they may be worth considering if you need to raise a lump sum, or you need a regular income for your retirement and you:.
You could lose some or all of your investment and any return you make on your investment is likely to be less than the cost of the equity release scheme. One reason you may be considering equity release is to pay for nursing home care.
If this is the case, you may also want to consider the Health Service Executive Nursing Home Support Scheme, which allows you to receive state benefit which you repay when your estate is settled. For more information on this scheme, contact the Department of Health or the Health Service Executive. You can find more information about moving to a nursing home here. A small number of firms offer equity release schemes. Always check that the firm you deal with is regulated by the Central Bank.
Choosing an equity release scheme is not something you should enter into lightly. There is always the risk that you might need the equity in your home later on, for example, to pay for nursing home care.
Also be aware that if you release some of the equity from your home, you will not be able to pass on its full value to your family or beneficiaries. With some lifetime mortgages, the lender may insist that the mortgage is paid off if you move out of your home, for any reason, for longer than six months. Ask your provider what their policy is on this. If you are considering an equity release scheme, get independent legal and financial advice first and consider the alternatives, including:.
Before you make any decision about an equity release scheme, make sure you get independent legal advice from your solicitor. You can get a list of law firms from the Law Society.
Also, consider the benefits of making a will before entering one of the schemes as this will avoid delays in sorting out your affairs after your death. Some providers may allow you to pay fees through your lifetime mortgage so that you do not need to have this money up front.
However, if you pay fees through your lifetime mortgage, you will pay interest on them, meaning they will cost you more in the long run. Maintenance costs can be high, particularly as your home gets older. If you have a lifetime mortgage, repair costs will be added to the amount you owe, so interest would be charged on those costs. Also bear in mind that some schemes may prevent you from making certain renovations to your home, as your provider may consider that they reduce the value of your home.
Such renovations could include installing ramps, lifts or railings, which you may need in the future, so ask your provider what their policy is on this. The terms of your agreement may allow your lender to insist that your home is sold and the mortgage paid off if:. If you have a complaint about a lifetime mortgage or home reversion scheme, and you are not satisfied with the way your complaint is handled, you can refer the problem to the Financial Services and Pensions Ombudsman.
You may also find our information on making a complaint useful. With home reversion schemes, you sell a share of your home in return for a set price, which is usually much less than the actual market value of the share of your home. You do not borrow against the value of your home but are actually selling part of your home and as such, you do not have to make any repayments.
You can live in your home for the rest of your life and can use the cash you receive for anything you like. With home reversion schemes you must take the money as a lump sum — you cannot take it in instalments. Under a fixed-share contract, the home reversion company pays you a lump sum in return for a fixed share of your home. The percentage they own and the percentage you keep is fixed from the start and cannot change, no matter how long you live or what your property is worth in the future.
With a variable-share contract, you get a bigger lump sum when you first sell your share but the percentage of your property that the home reversion company owns automatically increases each year without you receiving any more money. Therefore, the percentage of your property that you own will reduce as time goes on. So, the longer you live, the less of your property you will own. You get much less than the market value of the share you sell.
This is because the home reversion company may have to wait several years before they can cash in their share. So, the older you are when you sell a share in your home, the more money you will get. Due to different life expectancies, a single man of the same age would receive more money than a single woman, as he is expected to live for a shorter time.
A couple would receive less, as it is expected that one of them will live longer than both would if they were both single. You cannot change or reverse this kind of contract because you have actually sold part of your home. However, you may be able to negotiate with the home reversion company to buy back the share you sold them and you can usually sell your home on the open market by coming to agreement with the home reversion company.
This would allow you to cash in the value of the share of your home you still own. When you die, your estate may be given the option to buy back the percentage that the home reversion company owns. There are two types of lifetime mortgage, where you borrow money against the value of your home.
These are:. One of the conditions of getting a lifetime mortgage is that you have to pay off any existing mortgage on your home. Your lender should do this for you, but will often charge fees, so it's worth getting some estimates yourself before you commit. Look at how much your home has increased in value, and make a point of not increasing your loan-to-value ratio by borrowing proportionally with how much your property has increased in value. Fundamentally it's still about what you can afford to pay back.
Mortgage lenders have had to be quite strict about how much they lend to borrowers, and have to make an assessment based on affordability criteria. So you may not be allowed to borrow quite as much as you would like or hope to. If you plan for your home to further increase in value to negate increasing the size of your mortgage, you're taking a risk. Just because property prices have gone up in the past, doesn't mean they will continue to do so.
Look at the size of your current mortgage repayments and the size of your potential new repayments, see if you're happy with larger monthly outgoings. Work out the total cost of the new bigger mortgage, and see how much more interest you will pay over the lifetime of your debt.
Take into account any exit fees from your current mortgage and arrangement fees for the new mortgage - if substantial they could eat into the equity you're releasing. The cost of currently available mortgage rates - the price of mortgages goes up and down. Getting a new mortgage rate at the right time, could mean your mortgage will cost you less. Conversely if rates go up, your monthly payments could increase substantially. If you can afford to pay back the money within a year or two, a personal loan could work out cheaper than borrowing money by remortgaging, but you may face some large monthly repayments.
Because a personal loan is unsecured lending offered against your credit score, you will need a good to excellent credit to borrow at headline rates.
However, you can't use most credit cards to borrow cash, only for credit. If you do use a credit card for cash, you will pay extra fees and possibly a higher interest rate. But unlike loans or mortgages you can adjust the size of your repayments each month, provided you meet the minimum repayments.
Loans explained: all you need to know. We use cookies and similar technologies. You can use the settings below to accept all cookies which we recommend to give you the best experience or to enable specific categories of cookies as explained below. Find out more by reading our Cookie Policy. If you remortgage during the initial fixed or tracker period of your mortgage, then you will likely need to pay an early repayment charge ERC.
An ERC is generally calculated as a percentage of the outstanding loan and so can be a significant outlay. In addition to the ERC, you will often have to pay an exit fee to cover the administration of closing your account. There will likely also be fees to consider. You can add this to the mortgage balance, though doing so will mean you pay interest on the fee, costing you far more overall. There may also be fees associated with the legal side of the remortgage, though many lenders promise to cover these fees as part of their offer.
Increasing the size of your mortgage may not be the only option available to you if you're looking to raise funds. The most straightforward option will be to use your savings since this will not involve having to arrange any additional credit. If you need smaller sums, a money-transfer or long-balance-transfer credit card may be a better choice. If the main reason that you want to remortgage is to help a loved one buy a property, then there are a number of other methods worth considering.
You could take out a joint mortgage with them, as your income would be considered alongside the main applicant, which may make it easier for them to borrow the required amounts.
Alternatively, you could act as a guarantor. Remember, these options will mean that you are pursued for repayments should they fall behind. Find out more in our guide to how parents can help first-time buyers. Financial Services Limited. Financial Services Limited is a wholly-owned subsidiary of Which? Limited and part of the Which? Money Compare is a trading name of Which? Money Compare content is hosted by Which? Limited on behalf of Which? Mortgage calculators.
Compare Mortgages. In this article. Can I release cash from my home? What is equity? Why remortgage in order to release cash? How much equity do I own? How does remortgaging to release equity work? How much equity do I need?
Should I remortgage to pay off debts? The pros and cons of remortgaging to release equity What are the alternatives to remortgaging?
0コメント