Home equity release is an option many homeowners may be considering right now. The access to funds in a property must be tempting to those that need access to money. However, it is a big step to take, and should be researched thoroughly before proceeding. We took a look at some home equity advantages and disadvantages.
As you pay off a mortgage, you increase the equity in the property. Equity is defined as the ownership of assets that may have debts or other liabilities attached to them. They measure equity for accounting purposes by subtracting liabilities from the value of your asset. Which is of course your home.
Due to recent government plans, if you’re 55 or over you may unlock tax-free cash from your house with the help of equity release, minus any mortgage you’re still to repay.
There are a number of benefits to taking an equity release. Those that do so receive a tax-free cash sum, and once you use the sum to pay off the mortgage, you can use the remaining money as you please. You protect the ownership of your home. Thus you can see why many are tempted to use the process.
You do not have to take equity releases as a lump sum. Homeowners can withdraw money periodically. You treat it like a form of income.
Money released to you could limit your access to benefits, as it counts as income or savings. Be careful about what you withdraw if benefits are important to you. By releasing equity, you are essentially taking out a loan, and should you die the terms demand that someone repays the interest. There is a fee for this equity release, and other alternatives might be better. This could involve taking out a separate loan should you require funds, or moving to a smaller home.
Think about your mortgage in general, and whether you could improve your deal. By refinancing or remortgaging a property, you may save money by moving to lower interest rates. This all depends on what sort of mortgage you took out. Consider whether to have fixed rates or variable rates, and how your payments could vary depending on what you choose. Look at what is out there in a crowded market. See what suits your personal finances.
If your financial situation has improved, then perhaps you could do the opposite of taking money out of your property, and put some in instead. Should the terms of your mortgage allow it, accelerate payments. You will receive such financial freedom from paying off a mortgage. Homeowners who pay off a property possess a huge asset that is wholly yours. You free income by not having monthly payments.