The equity release mortgage (also known as a lifetime mortgage or a reverse mortgage) is becoming an increasingly popular method by which seniors can tap into the equity in their homes, providing them with cash in the form of a lump sum or supplementary income.

Who can get an Equity Release Mortgage?

There are a few simple criteria you must meet to be eligible.

Be a UK Citizen

Own your own home

Be over a certain age (typically 55 to 62 depending on the individual scheme and the company offering it)

Own a property worth at least £40,000 to £70,000 (again, the exact amount depends on the company offering the scheme)

Some companies may allow you a small outstanding mortgage balance as long as you agree to pay it with funds from your equity release mortgage

How it Works

Most schemes allow you to borrow a cash amount that amounts to between 20% and 50% of the value of your property. The exact amount depends on your age (or your partner’s age-whichever is the lowest). In general, the younger you are, the lower the amount you can borrow.

You can receive the loan money as regular instalments, as one large lump sum, or in smaller lump sums at irregular intervals. Interest accrues on the amount you borrow, in the same way as with a conventional mortgage, meaning that interest will accrue more slowly if you choose to receive money via instalments rather than as one large lump sum.

The money you borrow via an equity release mortgage does not need to be repaid until the property is sold. At this point, the full balance of the loan is due, including interest.

There are four main types of equity release mortgage: home income plans, the interest-only mortgage, the lifetime mortgage, and the home reversion scheme.

Home Income Plan

The owner of the property takes out an equity release mortgage and uses the lump sum to purchase an annuity that provides income for life. Interest payments on the mortgage are deducted from the annuity. The mortgage does not have to be repaid until the home is sold.

Advantages

You are guaranteed an income for life, and don’t have to worry about interest accruing, as this is paid from the annuity.

The amount you owe on the mortgage remains constant-if the property increases in value over time, you or your heirs benefit

Disadvantages

Inflation may reduce the value of the annuity over time.

Interest-Only Equity Release Mortgage

The equity release mortgage is used to provide a lump sum, and the borrower must make monthly interest repayments. The principal balance must be repaid in full when the property is sold.

Advantages

The amount you owe on the mortgage remains constant, so any increase in property value benefits you or your heirs

You have fixed monthly repayments (if you choose a fixed-rate mortgage)

Disadvantages

You must be able to ensure that you can cover interest payments over the life of the loan

Choosing a mortgage with a variable interest rate is risky

Lifetime Equity Release Mortgage

The equity release mortgage is used to provide either a lump sum or monthly instalments of cash (the borrower can also choose to receive a combination of both types of payment). When the property is sold, the balance of the loan, including principal and interest, is paid in full.

Advantages

Provides a larger income than the home income plan or interest-only mortgage

Disadvantages

It will be difficult to estimate the amount of equity left in the property until it is sold

Home Reversion Equity Release Mortgage

The owner of the property sells their home (or a portion of the equity) to a lender, and receives a lump sum or monthly income. The lender takes a share of the proceeds when the property is sold, taking a share that is proportional to the amount of equity they purchased. For example, if you sell 50% of the equity, the lender will take 50% of the proceeds from the sale of the property.

Advantages

You will always know exactly how much equity you own

You or your heirs benefit from an increase in property value

No repayments-even interest-in your lifetime

Disadvantages

The lender will not pay market value for the equity

Look for a SHIP-approved Equity Release Mortgage

Plans that are approved by the Safe House Income Plan guarantee that you will never end up owing more than the home is worth, even if the property market changes, and no matter how much interest you accrue. You cannot build up negative equity in the property, and will not pass debt to your estate in the event of your death.



Thanks to Grant Eckert for contributing this article to our Equity blog:

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Home ownership is a major goal for the majority of Americans. Because of this, Americans take pride in their homes and really work hard to make the most of their investments. However, what most people do not understand is the importance of equity in your home and how to build it effectively and quickly. Some tips that will help you build equity in your home include making a large down payment, making more payments on principal, home improvements, and a shorter loan term.

The first tip to building equity immediately is to make a large down payment. The reason for this is that every dollar that you make as part of your down payment is immediately transferred to the equity in your home. In addition to this, every dollar that you prepay on your home is one less dollar you need to borrow in order to pay for it and a significant amount of money saved on interest. So, as you can see, making a large down payment is important to build equity as well as to save money on interest.

The next tip for building equity in your home is to pay on your principal more than is required and more frequently than required. The reason for this is that every dollar you pay on principal equates to a dollar built in equity. Too many people make their monthly payments and are only paying interest for a period of time so it takes years to build any real equity in the home. By making additional payments on principal you will immediately be building equity. So, even if your budget is tight, make small payments on principal in order to get in the practice and build equity one dollar at a time.

Next, to build equity in your home you can do some home improving. The reason this works to build equity is because when you improve your home’s value you increase the amount of equity you will be able to build. However, some of the more valuable home improvements are upgrades in bathrooms and kitchens rather than the addition of a swimming pool or extra storage space.

The final tip for building home equity in your home as quickly as possible is to apply for a short loan period rather than a long one. The reason for this is there will be less interest applied to the money borrowed, equity will be built quicker, and you will own your home outright in a shorter period of time. Of course, a shorter loan period means higher monthly payments, but it is worth the sacrifice and if there is any way you can do it you should.

So, now that you know some tips for building home equity you need to go ahead and get started. Equity will always work for you, never against you, so focus on building equity in your home.



Thanks to David Peters for contributing this article to our Equity blog:

Mortgage Refinance Rates

You have tightened your belt during the time you are saving for your house. Now, that you have enough equity in that property, you may loosen up a bit by making use of your equity through Home Equity Line of Credit.

Home Equity Line of Credit or HELOC, can help you in myriad of financial necessities. It can help you have a fund when you need it and for whatever purpose you may need it.

Although, you should be careful because putting your house as collateral may cause you to loose your house if you fail to pay your debt. This should make you think many times before you embark on taking money through home equity line of credit.

However, if your purpose of taking out money by means of home equity line of credit is to pay for medical bills or children’s college education, these expenses are inevitable. Thus, taking out money by means of home equity line of credit can be your best bet.

Additionally, if you want to consolidate your debt, HELOC or home equity line of credit may also be beneficial. This is because compared to credit cards and other unsecured credit facilities, the interest rate in a home equity line of credit is somewhat smaller. Another benefit of this means of taking out money is that consumer credits interests are tax deductible.

However, having said the benefits you may have from acquiring a credit through home equity line of credit, you may also need to look at the possible consequences if you fail to pay your debt.

The most important consideration is the possibility of loosing your house to pay off the debt.

It is thus recommendable that while you are considering the flexibility of a credit line, if you need a lump sum fund, you may consider taking out a Home Equity Loan instead. This is because in a home equity loan, you pay the interest and part of the principal debt regularly.

This is in contrast to the variable interest rate that applies in a home equity line of credit. Additionally, in a home equity credit line, your payments balloons at the end when you need to pay the principal amount of debt.

The flexibility of the home equity line of credit extends up to paying only the interests and paying the entire principal loan at the end of the term.

This makes it quite hard, and if you are not ready for such balloon payment, the risk of loosing your house is intrinsic in this case.

This is the reason why financial experts recommend that before you sign any contract that puts your house as collateral, you may need to scrutinize yourself a bit.

Will you need the money lump sum? Ask about Home Equity Loan.

Do you need fund periodically? Ask about Home Equity Line of Credit.

Consider also asking for payments terms, interest rates and what conditions will make the lender consider you in default. These questions once answered may help you realize if putting your house as collateral is the best solution to your monetary needs.



Thanks to Nela Odarijew for contributing this article to our Equity blog:

Have you claimed your Genesis site?

Because of home equity loans, homeowners are able to acquire extra money for a wide variety of purposes. Moreover, these loans make it possible to tap into the equity built without selling your home. There are many home equity options. Aside from getting a loan, homeowners may opt for an equity line of credit. Additionally, there is the 125% home equity loan option.

What is Equity?

The concept surrounding 125% or no-equity home loans is very simple. Ordinarily, homeowners would acquire equity loans that equal the amount of equity built in the home. Before going any further, it is important to understand how a home’s equity is determined.

Two factors contribute to a home’s equity, rising home values and amount owed to the mortgage company. If a homeowner’s property is valued at $200,000, and they owe the mortgage company $120,000, the home’s equity totals $80,000. In this scenario, the homeowner may obtain a home equity loan up to $80,000

How 125% Home Equity Loans Differ

If applying for a traditional home equity loan, homeowners may obtain a dollar amount not to exceed the home’s equity. This money can be used for home improvements, starting and operating a business, retirement, debt consolidation, etc.

On the other hand, if a homeowner is approved for a 125% equity loan, they are able to borrow more than their home’s equity. Because a portion of the loan is unsecured, many lenders steer clear of these sorts of loans. However, if your credit rating is high, several mortgage lenders are ready to offer a no-equity loan.

Reasons to Beware a 125% Home Equity Loan

125% home equity loans are more fitting for homeowners who require a large sum of money. Typically, these loans are common among those attempting to start a business. Moreover, these loans are beneficial for homeowners embarking on major home improvement projects.

If home prices continue to rise, 125% home equity loans will pose little threat. On the other hand, if the housing market takes a sudden nosedive, those who accept 125% home equity loans will likely owe more than their homes are worth.

Shady lenders will offer 125% equity loans because it’s a win-win situation for them. If a homeowner defaults on the mortgage, the lender forecloses on the property. However, because the amount owed exceeded the home’s value, homeowners are obligated to pay mortgage lenders the difference.



Thanks to Carrie Reeder for contributing this article to our Equity blog:

Equity Tips

You have been waiting decades for this day. It is not your 100th birthday. It is not your 50th wedding anniversary. And, it not the day that the local TV station airs a 24-hour Star Trek marathon. Today, you will make the last payment on your home. You will officially own the house that you “bought” many years ago! All of those overtime hours at the office, those countless weekends hunting through the newspaper for coupons, and the constant insistence that all of your kids wear the hand-me-downs from their older siblings have paid off! Your trip up Mortgage Mountain was worth it. When we first take out a mortgage for our home, it is difficult to imagine the day that we will pay it off in full. But the journey begins when we search for an equity home loan mortgage rate.

Equity Is a Good Thing

Equity is the amount by which a property’s appraised value is greater than the debt value. If a home’s market value is $200,000 while the mortgage balance is 50,000, the property’s equity value equals $150,000. So, equity is a good thing when taking out a mortgage. The greater the equity in the house, the better. Adding equity to your home is fairly easy. Of course, making a mortgage payment is one way to build equity. And the sooner that you reach a hundred percent equity - or own your home, the sooner you can retire, have genuine wealth, and experience less financial stress. Also, the more equity you have, the better the equity home loan mortgage rate you can find.

Making your monthly mortgage payments based on your equity home loan mortgage rate is just the start. You can engage in other ways to build extra equity. The following are ways to build extra equity.

* Improve the size or quality of your home, via home improvements. Remember, though, that some improvements are more advantageous than others. Remodeling bathrooms is usually more beneficial than adding a swimming pool. And remodeling kitchens is usually more beneficial than attaching a skull door-knocker on your front door.

* Make a higher initial down payment when buying your home. This will also increase the equity. Think about it this way: the more money you invest in your home, the less you can waste

* Make extra principal payments or add to your monthly payment that will be dedicated to your principal. Less debt means less interest, so less of your payment will go to interest, and more will go to your principal. Also, each dollar you send reduces your debt by an equal amount. However, check if your lender permits extra payments of principal.

* Secure a lower equity home loan mortgage rate will allow you to refinance, if you are now in a long term mortgage - 30 years, for example. Also, you could initially secure mortgage with a shorter term. A shorter mortgage term translates into paying down your principal faster, thus earning extra equity, faster.

Rating Rates

While building equity in your home is wise, searching for the best equity home loan mortgage rate is equally important. Many companies have search engines that can find the best rates for you. Factors considered include where you will buy your home, and the loan amount.

The first important step in buying a home is buying a home. Afterwards, adding equity to your home is important in adding value to it. That will give you the equity home loan mortgage rate that none other can equal.



Thanks to Rony Walker for contributing this article to our Equity blog:

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