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Could equity release prove a viable way to raise funds?

With houses prices on the up and up, recent data has revealed that more and more homeowners are looking into equity release programmes as a means to raising funds here and now without having to make any repayments until the property is sold.

With an equity release loan, homeowners are able to borrow money based on the value of the property, the age of the borrower, and other factors, and the loan plus interest in then repaid when the property is sold.

There is no pressure with regards to the sale of the property, and homeowners can even stay in the property for the rest of their lives – the loan is then repaid from the estate when the property is sold upon the death of the homeowners.

However, those looking into this type of borrowing are being urged to consider all the circumstances before rushing into anything. Although the thought of being able to raise money without having to repay anything until the property is sold can seem tempting, it is also important to consider other factors that come into the equation, such as your legacy to your children or loved ones, or how you would fund long term care for yourself and partner in the future if the need arises.

The amount that has to be repaid in terms of the loan plus interest rises over time, and this means that the longer the borrower stays in the property without selling it the higher the amount that will have to be repaid. However, the cost can never go above the value of the property.

50 and 60 year olds in the UK are set to have nearly one and a half trillion in equity by 2020 according to researchers from Datamonitor, and this could see the popularity of this type of scheme amongst older people rise further.

However, a spokesperson from Help the Aged advised: 'Gather as much information as possible and research your options. Involve your children and think about what other savings you have.'

Tom Smith
13th March 2007


More Information:

  • Home Equity Line of Credit
    For those with good credit, a mortgage in decent standing, and a relatively (depending on the bank's definition) sizeable difference between a home's worth and the balance of a mortgage, a home equity line of credit may be a good option for those needing a loan
  • Your Home as Collateral For Other Loans
    When you become a home owner you immediately open up more doors for yourself in terms of being able to borrow money to make things happen. It might be a business idea or an investment opportunity, but buying into property can open more doors than you might think.
  • Home improvements - be careful where you borrow!
    How have Britons financed the billion of pounds spent on home improvements this year? Mostly through personal loans, although other forms of payments have been used as well.


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