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What is mortgage equity release?
Mortgage equity release is the process whereby you free a sum of
money that had previously been paid into your mortgage. Common methods of
achieving this are either through remortgaging
or negotiation
with the lender.
Mortgage equity release can be useful to anyone who requires a
capital lump sum. Depending on the method of equity release, the planned
spending of this money may first need to be approved by the mortgage lender.
Why release equity? What the benefits of equity release?
Equity release can be used to fund a variety of different aims,
including investments of various forms and debt consolidation. A common
use is to use equity release for home improvement, aiming to increase the
value of the property and therefore negating any losses incurred through
higher interest repayments. Mortgages also tend to offer lower rates of
interest than other forms of borrowing and debt, making equity release
a popular option for those looking for a means of finance or debt consolidation.
Releasing equity from your mortgage will mean that you will be
repaying it for longer. Interest rate payments will increase in the short
term due to the increased borrowing, and you will pay more for your mortgage
in the long term.
This can depend on the fees charged by your lender and any other
clauses included in the contract. The increased interest repayments and
longer repayment time should also be taken into account. Depending on the
mortgage lender and the way you’re conducting the equity release,
there may also be restrictions on what you can use the money for. If the
equity release comes as part of a remortgage, there will also be a number
of costs associated with that.
It is important to figure out how much capital is required and
what it is needed for. Equity release is not necessarily as simple as a
loan or bank withdrawal, and should therefore be carefully planned before
any moves are made. Be sure to know how much capital will be needed, with
allowances in the case of home improvements or similar projects should
costs overrun. Once the amount is decided, do research or if needed consult
with external advice such as your accountant to decide if equity release
is the best method of raising the necessary funds. Be sure to factor in
any increased costs that will come from a mortgage equity release, as well
as any savings such as better interest rates on a remortgaged property.
If the decision is made in favour of equity release, two methods are available.
One is approach your existing mortgage lender about equity release and
the second to consider a remortgage. In both cases, further steps will
depend on the lenders themselves.
Equity release will either be available from your existing lender
under various conditions or through a new lender after remortgaging.
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