Equity release is a way of retaining the use of an asset or property that has underlying fixed equity, with the value of this property being equal to the equity. The amount released is often dependent on the equity level and the risk of the plan being implemented. It is essentially a contract between the provider of the asset and the lender, whereby the provider agrees to let the asset back in the event of early repayment. This is used as a method of protecting the equity of an organization by allowing the owners of assets to return them to the organization should they experience a financial loss.
There are two ways in which you can access equity release interest rates, direct and indirect. Direct equity release occurs when you enter into an agreement directly with a lender whereby you borrow the money. Indirect equity release happens when the property is owned by a third party company. In this instance, the company that owns the asset does not lend it but instead makes payments to the lender on behalf of the owners of the asset. You can choose either of these methods if you wish.
If you choose to use direct equity release, you will be able to borrow the maximum amount possible. In order to do this, you need to put down a large enough security to cover the interest rates. The most common types of security that home owners use are their home and their car. The advantage of using your own car and home to finance this type of loan is that you are able to calculate the market value for both your vehicle and your property. Using this information, the lender will ensure that you get the best interest rate available for your circumstances.
One of the main pitfalls to avoid when using this equity release option is that lenders may try and take advantage of you. Because you have committed yourself to the repayments, and because the market value of your new home is unknown at this time, a lender may believe that they can deduct these costs from the amount they are paying you. This is why it is vitally important to calculate the market value of your new home before agreeing to a loan.
The good news is that there are several equity release pros and cons that you should consider carefully before making any decisions. Firstly, you can take advantage of lower interest rates than you would get with a standard home loan. For many people, this is the biggest pro. It is also likely to help you avoid some of the other traps that may be out to get you. Finally, it can help you prevent repossession if you find yourself in arrears.
Although it is possible to pay off the full amount of the equity release over your lifetime, it is also possible to come up short. As long as you consider the pros and cons, you should be able to get a loan that will allow you to make up the difference. You can use the money to pay off outstanding debts or spend on new items for your home.