There are three main ways for homeowners to release cash tied up in their home:
The best way to release cash from your home will broadly depend on your personal circumstances, such as your age, your current loan-to-value (LTV), how quickly you need the cash and your ability to meet monthly repayments.
If you are 55 years old or over and think you could have issues meeting the affordability requirements of a mortgage or secured lender, then equity release may be a starting point for you. The most common form of equity release is a lifetime mortgage. This allows you to borrow money using your home as security but does not require you to pay this back until you either enter long term care or pass away. Your home is then sold to repay the debt back to the lender. And, if you use a lender registered with the Equity Release Council then there is a ‘no negative equity guarantee’, meaning you will never owe more than the property is worth.
The downside of equity release is that interest costs can soon mount up, especially if you choose not to make repayments. The lender will charge interest on the amount you have borrowed very month, with interest compounding on interest every month. If the debt ages over many years or even decades, these costs can run into the tens of thousands.
How much cash you can release using a lifetime mortgage will depend on your age, health and property. Get an indication of what you might be able to release using the equity release calculator from our preferred equity release broker Hub Financial Solutions.
Read more about the different types of lifetime mortgage and if you’d prefer to make repayments consider an interest-only lifetime mortgage.
If speed is of the essence and you need access to cash quickly then a secured loan is a faster alternative than a lifetime mortgage or a remortgage. Usually a secured loan can complete in days or weeks rather than months for a remortgage.
Secured loans are also useful if you want to borrow at a higher LTV than your current lender will accept or if you want to use the money for debt consolidation and this is not something your current lender will agree to. Those with a poor credit history may also find secured lenders will look at their application more favourably than traditional mortgage lenders.
The downsides of a secured loan are usually higher fees and interest rates than a remortgage or additional borrowing. A secured loan is often the second charge on a property. This means if the property is repossessed and sold the secured lender must wait for their money to be returned only once the mortgage lender has had their debt cleared.
You can get a secured loan directly from a few lenders or use a secured loans broker to access a wide range of lenders. The more complex your circumstances the more beneficial a broker can be. They do charge a fee for these services, but their knowledge of the market can make all the difference in finding the right lender for you.
Find out more about how a secured loan works and compare secured loan interest rates.
The third option is to get a remortgage or additional borrowing from your existing mortgage lender. A remortgage is often the lowest interest cost option for releasing cash from your home. If you are tied into a mortgage deal with an early repayment charge, then you may want to use an additional borrowing product from your existing lender instead. Sometimes the interest rates for additional borrowing can be higher than a lender’s remortgage rates. You should compare the total cost of borrowing for the additional borrowing against a secured loan to make sure you get the best value.
Yes, you can use the equity in your home to fund the purchase of another property. For example if you decide you want to buy a buy-to-let property but need a deposit, then you could remortgage your current home to provide the deposit for the buy-to-let mortgage. You can also borrow against your house to buy a property at auction by using a bridging loan. A bridging loan is designed specifically for this purpose. It is a form of secured loan lasting for a short period of time, often a matter of months. The idea is that you receive the funds fast and then repay these either through refinancing to another form of borrowing or after the sale of the property.
Find out more from our secured loans broker.
If you choose to use equity release then your age, health situation and condition of your property can all affect how much you can release from your house. Those choosing a secured loan or remortgage are limited by the maximum LTVs of the lenders.
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