Nov 4, 2016 1:45:52 PM

Using the equity in your home

Topics: Mortgages, Home Equity Loans 0

Owning a home can leave you feeling “asset rich and cash poor”. Depending on your circumstances and provided you’ve paid enough of your mortgage, you may be able to access some of the equity in your home to do that home renovation you need to do, buy a new car, or even travel. Home equity release schemes let you turn your home’s value into dollars without having to sell-up and move. Read on to find out more.

Home equity loans
Depending on how much equity you’ve built up in your home, you may be able to access that equity through a home equity loan. You can use those funds to buy an investment property, renovate your home or book a family holiday. Typically, this type of loan is set up as a line of credit loan which allows you to withdraw funds up to a set limit, as and when you need to.

Interest rates are generally higher on line of credit loans, so it’s worthwhile shopping around or getting in touch with your mortgage adviser to discuss your options. Some lenders may offer better rates on these loans to encourage refinancing, so a financial health check of your current situation might help put things into perspective for you.

It’s a convenient and easy to manage type of lending as your loan repayments are all rolled into one, and the interest rate charged will usually be lower than that of a personal loan or a credit card. The downside is that if house prices go down you could end up with a loan that is more than what your home is worth.

In most instances, provided you owe less on your home than its market value and you have at least 20% equity in your house after you’ve taken out the loan, you can apply for this type of lending.

You can help build equity in your home by paying off your home loan faster, either by topping up your monthly payments or by switching to fortnightly payments so you effectively make an extra payment each year. Improvements to your home could also increase its value and subsequently your equity.

Reverse mortgages
Designed to help home owners over the age of 60 maintain a standard of living by releasing equity out of the home, a reverse mortgage lets you borrow funds using your home as security, effectively freeing up part of the value of your home without you having to sell it.

To qualify for this type of loan you must be at least 60 or 65, depending on the lender’s requirements, and you can only borrow a percentage of your home’s value. Your home must be mortgage-free, although you may be able to borrow if you only have a small amount left to pay towards your mortgage.

Generally, reverse mortgages come with a lifetime occupancy guarantee, which means you can live in your home for as long as you choose, and the lender gets the money you borrow back when your house is sold.  This type of loan also usually offers a “no negative equity” guarantee which means that you – or your estate – won’t have to repay more than what your house sells for. So you won’t be leaving your children with a debt if your house sells for less than the amount of the outstanding loan.

The money you borrow can be taken as a lump sum, drawn on as you need it, or paid out to you as regular payments; by only drawing the money as you need it though, you help keep the interest down. And the best part is you can use the money for anything you want – whether it’s a holiday, a car, renovations or repairs, a health-related cost, or just as a top-up to your regular income.

Interest rates are generally higher on these types of loans and you do need meet certain requirements, so it’s worthwhile talking to your mortgage adviser and getting independent legal advice before you make any decisions, to ensure you fully understand how a reverse mortgage works.

How can we help you?
There’s no doubt that accessing the equity in your home is not a decision made lightly, and it will take serious consideration and investigation into the options. If you’d like to find out more about a reverse mortgage or about accessing the equity in your property by refinancing or through a home equity loan, get in touch with one of our advisers today.