Owning a home, whether you do so on your own or as part of a married couple, involves a myriad of complicated contracts and agreements, and you would certainly be forgiven for not knowing or understanding each one in great detail.
However, when it comes to the matter of your home’s equity and possibilities of early equity release, it certainly pays to at least know the basics.
With this in mind, continue reading for a concise guide to your home equity.
What Exactly is Home Equity?
Basically, what is meant by home equity is the difference in monetary value between the overall value of your home and the current balance of your mortgage.
There are many reasons why you may be considering unlocking some of your equity and there are a variety of different loans which are specifically designed for each use and if this is something you are considering, you need to make sure you choose the right one applicable to you.
What are Residential Sale Leasebacks?
An increasingly popular way to unlock equity from a private property is through a residential sale leaseback.
A key advantage of a residential sale leaseback for homeowners is the ability to access all their home equity (minus fees) without taking on additional debt and having to vacate their home.
Other Ways to Unlock Home Equity
Although residential sale leasebacks are by far the most advisable way to proceed when wanting to unlock the equity of your home, there are several other available methods, as discussed below.
1. Home Equity Loans
Firstly, a home equity loan is a loan against your property which is supplied to you in one lump sum of cash.
Home equity loans are usually on a fixed-rate basis and the monthly payments, always remain the same and never change.
2. Reverse Mortgages
Secondly, a reverse mortgage is a mortgage loan which has a strict set of rules to adhere to and the penalty for missing a payment, for example, can be exceedingly severe.
There are, however, usually no mortgage payments required when a person takes out a reverse mortgage on their property.
Finally, a HELOC (Home Equity Line of Credit) is a secured loan of the revolving kind which involves the property itself being the collateral, essentially meaning that you are taking out a second mortgage on your home.
The lender would then agree to borrow an amount, which is always capped with a maximum, over a fixed amount of time.
Reasons to Release Home Equity
There is a plethora of reasons why a person may want to release some of, or indeed all, of their home equity, including the fact that an older person may want to take some money from their home to spend on adventures and ticking items off their bucket list.
Other exceedingly common reasons why you would want to release home equity could be to pay medical bills, for home renovation, or else simply to go on a family holiday of a lifetime.