Mortgages - house - Equity (Tricky business)
Equity
When your home is where the cash is, so you might think?
Like we all know, the cost of living is rising for all of us. The cost of electricity and gas rose by 30% last year, while pensioners were denied any extra help with fuel bills from the government in the chancellor’s Pre-Budget Report in December 2006.
Lifetime mortgages are the most popular kind and are regulated by the Financial Services Authority (FSA). These deals enable borrowers to secure a loan against a property in return for a lump sum or regular income. The interest accumulates and is paid upon death.
A new breed of lifetime mortgage, the flexible drawn down, is more expensive than traditional loans but is becoming the most popular option because it enables home owners to state an amount they want to borrow and dip into the pot when they want.
The dangers of spending money you don’t have, but you think is yours because the house has equity.
For example if you bought your house, a four bed detached 20 years ago for £50,000. And today it’s worth £100,000. Your salary might have increased by 5%; this doesn’t mean you should go ahead and buy a BMW or boat. If you can afford the repayments on your mortgage, then you are welcome to tap into your positive Equity, but remember this that interest rates do rise and fall, so whatever you spend remember you have got to pay it back.
If you have negative Equity, this could mean you have already borrowed more than your house is worth. So your monthly payments will be higher because of the increase in interest rates. Some home owners in this situation have been known to have lost their property, for failing to keep up with their monthly payments.
If you have positive Equity, it might help to consider the state of the economy and your salary before you rush to remortgage. Remember no matter how tempting the offer from your lender is, “it’s better to do your home work”. Your lender is only after the house if you cannot keep up the monthly payments secured on your home (fact).
