One of the biggest commitments you will ever make is in taking out a mortgage and then striving to repay it, eventually reaching the pinnacle of full home ownership. It is perhaps the biggest investment too from both financial and emotional angles. A lot has changed in recent years within the mortgage industry and the new trends and rules are a result of what happened to the global economy back in 2006. In the United States, things started to spiral downwards and as a result, many markets around the world were largely affected. The house owners could not afford their repayments and financial disasters struck almost everywhere. It has caused dissatisfaction and worry over products like equity release mortgage schemes.
A lot of people lost their dream homes while some were lucky to manage their finances carefully and re-coup back what had always belonged to them. People who knew about the equity release mortgage and how it could work in their favour could find their ground. For the over 55’s an equity release loan is one of the options they used. Today, you can apply for an equity release whenever you need as long as you know what you have taken in your home equity and seek specialist equity release advice.
The financial world can always be a tricky place and situations do arise as they always did. The basic principle here is that any equity mortgage loan permits you to use your equity value in the property by using it as collateral. This is a quick way to get the money you may need. In reality, it works more as a personal loan than anything else. The golden rule or the key rule here is to know your long term investment and financial plans because lack of planning can cause some serious trouble at a later stage.
You are also better off speaking to your independent mortgage adviser in the first instance to ascertain how much you are eligible for. This is important as the mortgage needs to be arranged in order for you to stay on track with your budget and finances.
Equity release mortgage loans have gained a lot of momentum and popularity in recent years. You can either get the whole money as lump sum or in monthly instalments, namely by drawdown. This depends largely on the availability of the lifetime mortgage lenders.
It is highly recommended that equity release is used as a last resort once all other options have been eliminated such as downsizing, using any savings and asking your children for financial assistance. Also, bear in mind plans start at age 55, hence the younger you commence an equity release mortgage there more inherent risk due to the fact it has more time to run based on average life expectancy, resulting in a potentially larger balance at the end of the day.
Your equity release product in mortgage form will accrue interest. It is a financial product like any other home mortgage in that respect. The difference is that you will not repay the loan in any way until your death or you decide to sell the home and move out. It means that the interest compounds for however long you remain in that house adding to the principle balance. You could find yourself in a negative equity situation when you are ready to sell thus eliminating any chance of leaving an inheritance to your beneficiaries.
There is one product that helps you to eliminate this issue with compounding interest, which is called the interest only mortgage. In this scenario you have disposable income that will cover the interest payment each month. The payment is based on the amount you took in the lump sum and the annual percentage rate the bank assigned to your equity release mortgage. In the end you pay only the principle balance back since you have kept up with the interest as it was applied.
There is another option that is not a mortgage, but helps those over 65 to secure a lump sum from the equity release in their home. It is less desirable and harder to attain in recent years because of misunderstandings about home reversion. You do sell the home to gain money, which is also less desirable to many.
At the end of the day, what you want to do is look at the various financial products including all forms of equity release mortgage schemes, speaking with your family, and consult a qualified financial advisor before making a concrete decision.