If you are considering borrowing funds against the equity in your home to finance a property investment, then a home reversion scheme may be an attractive option for you. As the name suggests, a home reversion scheme allows you to borrow funds and repay them over the life of your mortgage. This enables you to lock in at relatively low interest rates for the duration of the mortgage. However, it is important that you approach this carefully as there are a number of risks associated with borrowing funds against the equity in your home. There are also risks associated with the financial consequences should you have to sell your home during the course of the mortgage.
The first thing to think about when is equity release a good idea for you? If you plan to borrow money against the equity in your home in order to fund a major purchase such as a new property, or to consolidate existing debts, then the answer is undoubtedly yes. However, you must consider carefully exactly how much of your total debt your lender is willing to provide you with assistance in order to secure this funding. Some lenders may offer you very low initial mortgage rates, which may tempt you to borrow more than you need. This could result in serious disadvantages such as a lack of access to affordable mortgage products at later stages if your circumstances change.
Another reason why you must carefully consider is equity release a good idea for you is if you want to create additional access to your retirement income. You will be able to reduce your monthly outgoings by up to twenty-five per cent by borrowing extra funds against the value of your home. The additional funds will allow you to enjoy a much better quality of life, as you will be able to live on a tighter budget. However, should you need to repay these loans early, or should you find that the market conditions have substantially changed since you made your initial investment, then you could find yourself in real trouble.
You may also wish to consider a second mortgage on your property in order to raise the funds to pay off any debts, although this comes with its own set of disadvantages. First of all, you must be prepared for the fact that you will probably not get any decent interest rates on this new mortgage. You may also need to put up additional security in the form of a home security deposit, which will go towards making your first mortgage repayment. Finally, you may find that you have to move out of your property by the time the loan matures should you decide to make use of your extra funds. If you do not have sufficient equity release cash available to fund your needs, then refinancing is likely to be the best alternative.
As regards the pros and cons of equity release, there are many to be found online, so you will have to closely examine them in order to arrive at a solid conclusion as to whether this scheme is in line with your personal circumstances. On the one hand, you can raise much needed funds by way of this scheme, thereby ensuring that you can afford to service your current mortgage. Secondly, you can avoid paying taxes on any amount of capital gains realised through early repayment. These benefits are particularly attractive when tax levels are already high, and there is little chance that tax will rise again in the future. In addition, your children will enjoy life in the same house as you once did, without you having to worry about property rent or mortgage repayment.
However, there are some potential disadvantages to consider as well. One of the most obvious pitfalls is that you could lose your house altogether if you do not take the necessary precautions. If you wish to keep your property, then you are going to have to ensure that you will be able to keep your house at an acceptable market price once your loan has been repaid. Unfortunately, if house prices drop in the short term, you may be trapped in the situation of having to sell your home before being able to buy yourself a new one. While equity release can help you avoid this problem, it is wise to use the scheme to offset for the potential fall in house prices rather than relying purely on the scheme to prevent it.