Purchasing Equity with Home Loan or Releasing Equity: Who Can do it?
In the past, equity release products were only available to seniors who owned their homes outright. But today, there are options for those who have a mortgage or other liens on their property.
Equity release products often involve taking out a loan, which can be paid off over time. – The funds are then given to the home owner who uses them for other purposes such as purchasing long term care insurance or an annuity where they will receive regular payments until death.
Since this is not technically borrowing from yourself but rather borrowing against your equity in real estate, it falls outside of conventional lending regulations and therefore requires less stringent qualification criteria than traditional mortgage loans. This may make equity release more accessible and attractive to prospective homeowners with bad credit scores or no money down on their homes (ie: those that cannot qualify for a traditional mortgage).
The downside is that most lenders require you pay back whatever amount was borrowed plus interest, which can be quite costly.
The fees associated with equity release (such as the cost of appraisals and surveys) may also be a downside since they are paid up front on top of other loan costs. – Homeowners who choose to sell their homes before paying off the debt will have to pay it back in full by doing so or forfeit any remaining funds that haven’t been borrowed yet.
Generally speaking, if you’re struggling financially but still want to maintain ownership over your property for some reason (family ties? emotional attachment?) then this product might not be right for you because there is no escaping the financial liability once you’ve taken out an equity release mortgage. On the flip side, if owning your home is not a priority for you and you’re looking to free up some cash, this may be the right solution.