If you are under 55 years of age, you will not be eligible for an equity release scheme. Both home reversion plans and lifetime mortgages (the two different types of equity release plan) are intended for those who are over 55, and in both cases the best deals are available to those who are 65 and over. Generally speaking, the older you are, the more cash you will be able to release from your home. So, where does that leave anyone under the age of 55 who wants to use the value of their home in order to raise funds?
There are two options available, one is to remortgage your home, and the other is to apply for a secured loan.
This is a loan that is backed up by your property. From a borrower’s point of view, the main difference between a secured and unsecured loan is that the rates of interest on a secured loan tend to be a little lower. Also, the amount of time you are given to pay back the loan is often longer, and crucially, the amount you can borrow can be much larger. This means that if you need a large amount of money quickly, perhaps to finance a major home improvement project like a house extension or garage conversion, then taking out a secured loan may well be the best option available to you.
It’s important to bear in mind, however, that even though you may be paying lower rates, if it takes longer to pay back, it still might prove to have been more expensive in the end. Lenders are willing to give out large amounts as secured loans, which have lower interest rates, precisely because the collateral is something as valuable as a property. This means that if you should be unable to keep up repayments for any reason, it is your home that you are putting at risk. If you default on the loan, the lender will have the right to sell your property and reclaim their money. For this reason, a secured loan agreement should not be entered into lightly.
If you need to borrow less than £25,000 and a lender is also willing to give you an unsecured loan, then this will be the better option every single time, as your home will not be at risk. The reason for considering a secured loan is if you need more than £25,000 and you want to be able to spread the cost for a longer period than would typically be able to do with an unsecured loan – perhaps for as long as ten years or more.
Think carefully before deciding to take out a secured loan, and shop around different lenders to find the best deal.
Some of them may be able to offer added benefits, such as the ability to pay off the loan earlier, which could make a big difference in the long term.
Remortgaging your home
Taking out a second mortgage can be an effective means of using your property to raise extra funds, and it is something that many people do in order to pay for a home improvement project such as a house extension or a new conservatory. For more detailed information, see How to Remortgage Your Home.