In simple terms, the phrase ‘home equity‘ is defined as the current value of your property minus any amount of money that is still outstanding on it. Home equity is perhaps the easiest source and most popular form of finance for any person when they are in need of some serious money for major projects to be undertaken. It is very simple to calculate the value of the equity that is tied up within your four walls. You simply have to deduct the mortgage balance from the market value of your main residence to derive at this figure. There are many home equity loans that can be a great source of finance. But please be aware of the principles of home financing; if you can’t afford it then don’t borrow it!
Exploring the Product Benefits
These types of equity schemes can provide you with financial help when you are looking at improving or renovating your home, planning to buy a new car or may be even to buy another property.
A home equity mortgage can also be quite helpful to pay off your other high interest and expensive to maintain loans. These loans are usually preferred as they are easier to deal with than the other forms of financing. You can use the home equity loans conveniently to meet your short term and long term liabilities. Whether you are looking at renovating your home or want to meet your medical and educational expenses, home loans can be quite advantageous primarily because the interest on these loans is tax deductible.
Understanding your liabilities and figuring out the right method of debt consolidation is very important for your financial security and well-being. As the interest paid on home loans is tax deductible unlike on other loans, it is advisable to have a good mix of liabilities to ensure that you benefit out of your liabilities too. You may also notice that the interest on the equity loans are lower than that found on credit cards especially a revolving line of credit and personal loans that have no collateral.
Retirement Lifetime Equity
Traditional home equity mortgages are a great way for anyone to get money they need. However, when you hit retirement cash stops flowing in. This means that you might need some funds, but be unable to get a traditional home equity loan. The solution is a lifetime mortgage because you are able to take out the equity in your home with a repayment at death or when you move to a long term care facility.
There are four types of lifetime mortgages: lump sum, drawdown, ill health (enhanced), and interest only. Lump sum mortgages allow for one payment to be made to you of equity. The interest compounds on this lump sum until you pay it back. With a drawdown lifetime mortgage you take only what you need when you need, and interest is added on for only the amount used. An ill-health or enhanced lifetime mortgage offers a lump sum in larger quantity to make your last few years more comfortable. Lastly interest only pays interest on the account keeping the principle the same for the repayment at the end.
Home Reversions vs Loans
Going with home reversion might be a safer option for you if you know your home will eventually be sold anyway. With home reversion you sell the home in part or full. You then use the cash to live on or enjoy dream vacations. There is no repayment and no interest. At the end you simply sell the remainder of the house and give the rest of the money as an inheritance. As the home is sold you might worry about where you live, but you live in your home. You live rent free under a lifetime tenancy agreement which means you can stay as long as you want and so can your spouse. As long as anyone over age 65 is named on the tenancy and the home reversion plan the house is yours until death. For some this is better than taking out a new loan and for others it is not the best choice.
This is by far the biggest reason why people prefer home equity loans over conventional refinancing options. Now, that the interest on these loans is less, the financial institutions need you to have a great credit rating in order to acquire one. It is highly recommended that you do a basic research of the market lenders before making a sound decision in line with your long term financial goals.