When to Release Equity from Your Home?

Image courtesy of Oatsy40
Image courtesy of Oatsy40

If you own your own home, then you will probably know that it is possible to release equity in that home. This can be done in two main ways. You can extend your mortgage based on the increase in value of your home since you took it out or if you have paid off the original mortgage you can use an equity release scheme in order to get some cash or income from the home.

Whichever method you use it is worth thinking very hard about whether to do this or not. It is something that most financial advisors say should not be done but in some specific circumstances it could be worth considering.

Increasing your mortgage can be a very expensive way to borrow, Although the mortgage rate is usually less than that of a credit card or overdraft, because it is paid off over a much longer time period, it can work out a lot dearer in the long run. It is well worth working out whether it is really necessary to borrow the money at all and if so, how much it will cost to borrow it this way. Compare that cost with other types of lending to find out whether there is a cheaper alternative.

Most equity release schemes are associated with those people that have paid off their mortgage but need some money in retirement and want to get some of that money unlocked from their homes. There are many different schemes but most will mean that when you die, your home will be sold and the proceeds go to the lender. The problem with this is that many people would like to have a property to leave to their children and if they release equity in it then they will not be able to do this. It is also not good value for money, often the money that you get given is only a small percentage of the value of the property. The schemes do vary though and so some will be much better than others. There are various reasons why people might still decide that equity release is a good thing for them. It might be that they want to be able to enjoy their retirement more and get back some of the money that they invested when they were younger. They may not have anyone to leave their property too or may feel that their children do not need much inheritance as they are doing well anyway. They may even decide that they would like to give the children their inheritance early so they can watch them enjoy it or deal that they need it now rather than waiting.

It is therefore a decision that should not be taken lightly. However, we all have different circumstances in our lives and therefore need to make sure that we make the right decision for us.  As well as considering the cost of our decision we also need to think of the effect that it will have on us in the future as well as how it will make a difference right now.

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Rachel Henderson is a professional freelance writer from the UK. She writes on many subjects but specialises in personal finance. As well as contributing to various blogs and websites she has her own website tracking her own money making process http://www.turnonepoundintoonemillion.com and sells her books through http://www.bowbridgepublishing.com.

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