Equity Release To Settle Interest Only Mortgages

Anyone faced with an interest only mortgage that is approaching maturity and do not have sufficient savings or a maturing investment policy to cover the amount owed may have a problem on their hands, especially if they do not want to move home via downsizing.

However, the answer to this tricky and complex situation could be in further borrowing, with equity release an option that people in certain circumstances may wish to consider.

Crucial to this decision is weighing up various options if you need to settle the interest only balance and do not have the funds to do so and the lender does not offer an alternative solution or extension. A number of more obvious choices are

• sell your house to cover the cost of the mortgage and move down.
• look at equity release solutions to borrow funds to keep it. You should take legal advice before embarking on any equity release scheme.
• look at traditional repayments mortgages that can enable you to go to up to 80 years old. For these again look into advice and make sure you can afford repayments.

By making use of the equity release, people have been able to stay in their home by utilising the value of their equity - most people (and especially older borrowers) will have some simply due to the rising market of recent years that has seen house prices recover somewhat from the dul drums of the 2008 fall.

The equity release mortgage is termed a lifetime mortgage. Using a lifetime mortgage for paying off the interest only mortgage has the advantage of letting people stay in their property despite only ever paying the interest on their former mortgage. However, it also means they will be eating into their equity as any interest not paid will be added to the equity release balance their lender will hold an increasing stake.

Most lenders offer a no negative equity guarantee so when you die or move into permanent care and the equity release balance is paid from the selling of the property, no extra monies will be owed. However it will mean your estate will be reduced and sometimes there may be no equity left. If you are worried about the impact on your estate seek legal advice and speak to your family before going ahead.

What every homeowner needs to remember when considering an equity release loan for their property is that their unique set of circumstances will be crucial in deciding if this is the right course of action for them.

For that reason, it is always advisable for anyone considering equity release to seek out the services of a qualified adviser before any action is taken.

Homeowner Secured Loans 9.8% APRC. Representative example: Borrow £50,000 over 180 months. 60 months at 8.1%, £497.83 pcm fixed at 60% LTV. Then 120 months at 10.1%, £539.89 pcm variable. Total payable £94,656.60. Total cost of credit £44,656.60 (including: £795 lender fee, £985 broker fee & £42,876.60 interest). First Choice are tied to certain loan providers.

Mortgages & Remortgages 8.4% APRC. Representative Example: Borrow £120,000 over 25 years at 5.99%, £778.86 pcm fixed for 3 years at 60% LTV. Then at 8.75%, £974.86 pcm, variable for 22 years. Total payable £286,416. Total cost of credit £166,416 (including: £985 broker fee, £999 lender fee & £164,432 interest)

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THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT. Security is required on immovable property.

Late repayment can cause you serious money problems. For help, go to moneyhelper.org.uk

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