A House Equity Loan Is NOT Equity Release
The world of financial services is filled with confusing terms that can make it difficult to understand just what it is you're doing. The word 'equity' is one of those terms, especially as it applies to equity release and a house equity loan. The purpose of this article is to explain the difference between the two. Suffice to say that equity release is not the same thing as getting a house equity loan.
If you own a home, you may already have some equity established. You can take advantage of that equity without selling your property or giving your lender partial ownership of it. You can also benefit from a number of different equity release options if you want to raise cash in exchange for full or partial ownership. Everything you need to know is explained below.
The House Equity Loan
A house equity loan, sometimes known as a home equity loan in some circles, is essentially a personal loan secured by the equity in your property. Equity is the difference between how much you owe on your mortgage and the current resale value of your home. If you have a property worth Â£150,000 and a mortgage balance of Â£75,000, you have Â£75,000 in equity. That same home would have Â£150,000 in equity if your mortgage were already paid in full.
House equity loans are secured loans that can be used for a variety of purposes. Some people use the money for property renovations, others for debt consolidation, and still others to pay for large things such as weddings or a university education. The possibilities for spending equity loan cash are virtually limitless.
Equity Release Programmes
Equity release is a means of releasing the equity in your home for the purposes of providing income. It is generally available only to people aged 55 and over, and it is intended to make up for insufficient income during the later years of working and into retirement. Having said that, equity release does come at a price: the homeowner no longer fully owns his or her property after entering a deal.
There are two kinds of equity release programmes available to the public:
A lifetime mortgage offers a property owner the option of 'selling' a property and receiving the cash while still living in the home. Cash can be received as monthly income or a lump sum payment. What should be understood is that the home is not sold immediately upon getting a lifetime mortgage. Rather, the owner is agreeing to a sale in advance. Having to move into a long-term care facility or death will trigger the sale. Proceeds from the sale go to repay the balance of the mortgage.
A home reversion deal does involve an immediate sale. In exchange for cash, the property owner sells full or part ownership of the property to the lender. He or she is then allowed to remain living in the home as long as the property is properly maintained. Like the lifetime mortgage, the property is sold upon the borrower's death or long-term care arrangement with the proceeds going to satisfy the loan. Any proceeds left over go back to the property owner or his or her estate.
As you can see, a house equity loan and equity release are two different financial products. Both serve their purposes for those who use them. You might want to consider them if you are interested in converting the equity in your home to cash. You have equity, why not put it to good use?
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