Pitfalls to Avoid When Considering an Equity Release in the UK

equity release in the UK

Equity release is a general term that refers to an array of financial products which allows people to access the equity stored in their property. The tool allows people to borrow against the equity in their property, without needing to sell or move into the property quickly. There are essentially two main options for equity release in the UK; namely, lifetime mortgage and debt transfer loan. Each has its pros and cons, and it is vital to understand them before choosing a method. To help you out, we will go through the fundamental differences between these two loans.

Lifetime mortgages are actually mortgages taken out over a longer period of time. This means that the interest rates will be fixed at this higher rate of interest for as long as you live in your property. However, when the borrowing starts to come to an end, so does the interest rates. This is because at this point, the homeowners can choose to take out another mortgage to pay off their previous mortgage, or they can choose to get themselves out of the property. However, with debt transfer loans, the borrowers have the opportunity to repay the amount over a longer period of time, but interest rates may increase significantly.

As mentioned earlier, debt transfer loans are actually the same as a lifetime mortgage, except that they are not taken out over an extended period of time. Instead, the money can be borrowed for just a short period of time, typically between three to five years, and then the mortgage is repaid using the money that you have borrowed. As mentioned, you will have to deal with increased interest rates once the period is over. This is because lenders will charge more interest once the period is over, because they will make a large number of profits from your monthly repayments. However, this is a small price to pay as compared to the alternative, which would be to get into debt and default on your mortgage. Obviously, this is not something that anyone would want to do.

If you have other assets that are also secured by equity, then you can use your equity to help secure these other assets. For example, you could use it to secure a home loan, allowing you to enjoy fixed payments for a longer period of time. In order to find out more about this option, speak to your lender, who will be able to explain it in more detail. However, in order to benefit from your life cover or life insurance, you will need to take out a loan to pay them off. This can be done in either a secured form, by borrowing against the equity in your home, or unsecured, by taking out a personal loan.

One of the main disadvantages of this equity release scheme is that you need to have sufficient equity in order to qualify for the loan. Although your home may be at risk, it is still worth exploring the different options, as they could all provide you with great benefits. However, if you are in a situation where you owe more on your property than you earn, or if you fear that you could soon lose your home to repossession, then you should consider taking out a home reversion loan to help relieve some of the pressure.

There are many different pitfalls associated with repossession, but with the assistance of a specialist loan provider, you should be able to minimise them and reduce the chance of having to go into foreclosure. It is vital that you understand the financial pitfalls that you could be facing, so that you can prepare yourself and your family for any potential events. Home repossession does not have to be the only solution available to you, as you can avoid it by taking action before your circumstances become worse. Speak to an expert today to find out more about this exciting new loan product.