Many people know about taking a mortgage to purchase a home but many do not know about equity release. Nonetheless, it is a new concept of borrowing money using your home equity. Equity releases are suitable for the elderly, and they continue to own their home, and until they die that the lender sells the house.
As much as equity release is beneficial, it still has some limitations. Today, we are going to highlight four pros and cons that you should know about this type of mortgage.
Your home remains yours
You are asking the loan provider to give you some money, which will continue to increase in interest. Nevertheless, they can never chase you out of your home if you cannot pay it up.
The contract binds the lender only to sell the home when you die or when you leave the property to go to an elderly home or another location.
Acquire quick money to settle an emergency
As mentioned earlier, the process of building the house can render you broke. If you have an emergency, you can turn your home equity into money through the equity release.
You can also choose whether you want to receive the money in a lump sum or small amounts. Be sure to consider several things when selecting the type of payment you want to get.
You acquire a no negative equity guarantee (NNEG)
If you choose to move out or if you pass on, the NNEG ensures that you will not be liable to pay any extra amount spent during the resell.
That means that the money your lender gets will cater for the expenses incurred by agents and solicitors even if it goes below the amount you were to pay.
No mortgage restrictions
When you pick a mortgage loan, you reduce your equity for the property. The equity release allows you to request for a loan even if you are yet to finish your mortgage loan.
You will have to pay your mortgage to get extra cash on the release.
The problem with equity release is that the capital you borrow increases with time. You will have to pay in compound interest, which adds up yearly.
It also means that the longer you live, the higher the interest you have to pay.
Has an age limit
The loan is only available for the seniors. Countries that offer this type of clause allow individuals who are 55 years and above just.
It, therefore, means that younger individuals with some form of urgency cannot take this type
Expect less capital than home value
The open market is good because it allows you to sell your property at its original cost in the market. When you offer it for equity release, you should expect less money than its worth. Most lenders offer up to 60 percent of its original value.
Restricts you from future loans with the house
Equity release limits you from taking more loans with the property. Once you do this, the lender will allow you to maintain it and keep it from decreasing in value. Individuals who change their mind on this also have a difficult time getting the whole amount back.
To avoid any complications in the middle, always consult a good financial advisor, especially one that is registered with the equity release council. If you are looking for such professionals, head out to http://www.responsibleequityrelease.co.uk/ who help you when making this tough decision.
Salman is a prolific environmental writer, and has authored more than 300 articles in reputed journals, magazines and websites. He is proactively engaged in creating mass awareness on renewable energy, waste management, sustainability and conservation all over the world.
Salman can be reached on firstname.lastname@example.org.
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