Options for Releasing Cash From Your Property
Outright Sale: Selling the property will of course be the simplest route and will provide you with 100% of the current value of the property less any selling and legal costs. However, unless the property is being sold as part of a deceased estate or is part of a landlords portfolio, the owner of the property will need to find a new place to liveOptions here are:
- Downsizing: In this scenario, the new property will likely be much cheaper than the one being sold meaning that the price difference can be released as cash. This is a common practice where people are retiring and want to reduce their costs and often reduce the effort needed to maintain the property and its garden.
- Renting: In this case, all of the proceeds from the sale of the property is retained and opens up many choices for living. This may be renting a home in a new location where you really want to be, moving in with a partner or your family or simply freeing you from commitments in order to travel.
Remortgaging: This can often the cheapest way to raise cash from your property as mortgage interest rates for people who meet the high street lenders criteria are usually lower than other forms of borrowing. However, most lenders will place restrictions on what you can do with the extra money raised and although they are likely to be happy for you to carry out home improvements where these may increase the value of the property, they may not be quite so happy if you used the money to go on holiday or to pay off debts. Due to the long repayment terms usually associated with mortgages, what looks at first glance to be cheap money can often work out to be rather expensive, particularly when the new interest rate is applied to the full term of the increased loan.
Equity Release: Often referred to as a lifetime mortgage, these are mortgages set up on a similar way to normal mortgages but where no repayments are made. The interest that would normally be due is accumulated by the lender and on your death, whatever is owing is collected from your estate. Of course lenders build in safeguards to ensure that the loan will always be able to be repaid from the sale of the property on your death and they do this by applying criteria around your age, your health and expected future lifespan.To qualify, you need to be over 55 years of age and have a suitable amount of equity in your property to qualify. The older you are the more the lender will consider providing. This type of mortgage is aimed at people in retirement, who are not so concerned with leaving an inheritance and want to use the money they have built up over the years to improve their standard of living yet have the assurance that they will be able to continue to live in their property until they die.There are other rules that will apply but as a rough guide to equity release, the above will serve as a basic guide.
Second Mortgage: People are not generally aware that when they own a property that has a mortgage on it and providing the equity held in the property is sufficient, that they can actually take out a second mortgage on the property through a different lender which cab be on repayment terms that are quite different from that of the main mortgage. This way of raising funds from your property is often free of restrictions and you can virtually do what you like with the money raised.For example, suppose you want to go on an extended holiday but don’t have the funds that are required. Where you have sufficient funds held in your property, you could release some of them by taking out a second mortgage on a term and conditions that are easily affordable to you.
In the same way, you could raise the cash to purchase a new car, help a family member to raise the deposit on a home, fund private education for children or simply treat yourself to some of the small luxuries that you have been missing lately.
Second Charge Mortgage vs Remortgaging
You may ask why this method is better than simply remortgaging the whole property. Well, there are a number of very good reasons for this and they centre around avoiding higher costs through increasing the size of your existing mortgage on a higher interest rate which will then be repaid over the whole term of your mortgage.
For people who have poor credit ratings or where your credit rating has lessened from the time when you took out your existing mortgage, a second mortgage is likely to be the better solution as lenders are less critical on credit ratings and for many people, this will be the only solution that is available to them.
People with a poor credit history should take note that although second charge lenders will check your affordability for the loan, because the loan is actually secured against equity that you already have in the property, they are not so concerned with a persons credit rating in the way that any high street mortgage lender would be.
Special note for Landlords
Although much of the information shown here can be applied by landlords, they often have particular financial needs that come into play when they want to add new properties to their portfolios.
This generally means raising cash for the deposit on a BTL mortgage or just cash to facilitate buying the property they want at auction.
Using a second charge mortgage in conjunction with some of their existing properties could provide them with the funds they need and the cash can be in their hands in a very short time.
Fin out more If you would like to find out more about how to obtain a second mortgage, simply complete the no-obligation enquiry form and we will get back to you.
