Guide To Mortgage Equity Release

What is mortgage equity release?
Mortgage equity release is the process whereby you free a sum of money that had previously been paid into your mortgage. Common methods of achieving this are either through remortgaging or negotiation with the lender.

Who uses mortgage equity release?
Mortgage equity release can be useful to anyone who requires a capital lump sum. Depending on the method of equity release, the planned spending of this money may first need to be approved by the mortgage lender.

Why release equity? What the benefits of equity release?
Equity release can be used to fund a variety of different aims, including investments of various forms and debt consolidation. A common use is to use equity release for home improvement, aiming to increase the value of the property and therefore negating any losses incurred through higher interest repayments. Mortgages also tend to offer lower rates of interest than other forms of borrowing and debt, making equity release a popular option for those looking for a means of finance or debt consolidation.

What are the disadvantages of equity release?
Releasing equity from your mortgage will mean that you will be repaying it for longer. Interest rate payments will increase in the short term due to the increased borrowing, and you will pay more for your mortgage in the long term.

How much does it cost?
This can depend on the fees charged by your lender and any other clauses included in the contract. The increased interest repayments and longer repayment time should also be taken into account. Depending on the mortgage lender and the way you’re conducting the equity release, there may also be restrictions on what you can use the money for. If the equity release comes as part of a remortgage, there will also be a number of costs associated with that.

How do you release equity?
It is important to figure out how much capital is required and what it is needed for. Equity release is not necessarily as simple as a loan or bank withdrawal, and should therefore be carefully planned before any moves are made. Be sure to know how much capital will be needed, with allowances in the case of home improvements or similar projects should costs overrun. Once the amount is decided, do research or if needed consult with external advice such as your accountant to decide if equity release is the best method of raising the necessary funds. Be sure to factor in any increased costs that will come from a mortgage equity release, as well as any savings such as better interest rates on a remortgaged property. If the decision is made in favour of equity release, two methods are available. One is approach your existing mortgage lender about equity release and the second to consider a remortgage. In both cases, further steps will depend on the lenders themselves.

Who provides mortgage equity release?
Equity release will either be available from your existing lender under various conditions or through a new lender after remortgaging.
Independent Financial Advisers are also available to offer impartial advice on the subject.
Before going through with equity release, it can be valuable to consult either an IFA or your own accountant to analyse the options available to you. Equity release can work well when done correctly and in the right circumstances, but it is not the best option for everyone.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.