If you own a house and need to raise finance for some reason, equity release finance could provide the perfect solution. Equity release finance is a loan in which you would need to offer your property as collateral.
And in case you already own a home, the loan can be secured against the equity in your home. If the value of your home that you are providing as collateral for the equity release finance is more than the loan amount, then the rate of interest to be paid can be very low.
The amount that you will be allowed to borrow depends on a number of factors that include your credit rating, your employment and financial status, your income, your outgoings, and the level of equity that you have in your home. In case you have a bad credit rating, it might prove to be difficult for you to get equity release finance. Your tarnished credit score may be due to County Court Judgments, Individual Voluntary Arrangements, arrears, defaults, missed payments and so on. But nowadays, with the proliferation of the financial market, many lenders are specializing in giving equity release finance to people with bad credit records.
With equity release finance, you release the available equity of your home and draw money. The amount of equity available, decides the amount that you can borrow. Typically, you are allowed to borrow up to 100% of your home’s value. To find out how much you can borrow against your home, subtract the amount of money that you owe on your current mortgage from the appraised value of your home. With lesser or no equity, the amount you can borrow will be less. With specialised loans called no equity loans, you can borrow more than your home is worth. In some cases you may be able to borrow 125% of your home’s value.
Interest rates for equity release finance will be undoubtedly high as compared to traditional loans. Fees will also be higher in relation to standard loans. The total cost of the equity release finance can vary greatly depending on your credit standing, the lender, market interest rates and the structure of the loan.
Before deciding on a particular loan and lender, it is important for you to compare interest rates and closing costs from multiple lenders. Remember to check the fees, points and penalty fees, which often add thousands to the cost of the loan.
This is a loan that is offered by professional lending institutions and banks under the agreement that in case the borrower fails to pay the loan, a governmental agency or a certain institution will purchase the guaranteed portion of the loan.
In other words, guaranteed cheap finance has a secured financial back-up from a specific institution. This guaranteed cheap finance is for specific purposes and are intended for specific sectors or specific groups of people.
There are various government institutions as well as non-government institutions that perform activities essential to nation-building by offering guaranteed cheap finance to certain groups of people. Typically, these are those people who could not expand their business due to lack or limited access of capital.
Guaranteed cheap finance is designed to help certain groups of people or sectors so that they can increase their production and thus expand their business. For example, groups of small farmers who have limited access to capital, due to the lack of collateral, can avail programmes like guaranteed loans which will help them get a loan and help them increase their production.
Normally, banks and lending institutions would not have extended large loans to small farmers who do not have properties that could serve as collateral. However, with the government programme of guaranteed cheap finance, banks and financial institutions can now be encouraged to extend loans to these small farmers to help them increase farm production. They are not risky to the banks, since the government guarantees payment of the loan no matter what.
Many money lending firms in UK are offering remortgage for 100% of the value of their property in order to enable the borrower to consolidate some of his debt, or to switch over to a new lender for better repayment condition, or even to buy a new property.
Arrangement fees, valuation fees and fees for legal consultations are not imposed by most of the lenders for fast remortgage. The interest rate would range from 5% to 6.5% fixed for the first two years and then switching over to the Bank of England’s variable interest rate of 7.3%. However they would charge the borrower with an early repayment fee, if the borrower repays the loan during the first two years itself. They would also impose penalties if the borrower switches on to new lender again (Mortgage of the week, 2007).
The lenders could offer fast remortgage because of the increase in price of houses and rent in UK. It is reported that 50% of people of UK are having fast remortgage on their home (The rise of the 100% plus mortgage, 2007).
The fast remortgage could go up to 125-135% of the value of their property and a personal loan also could be linked with it. But very few people qualify themselves to such huge amounts, and generally the remortgage averages to 103%. There is a huge competition among the lenders to offer fast remortgage and if this trend continues the borrowers would have the advantage of cutting down the charges associated with the remortgage. They could also get a reduced premium amount.
There are two risks associated with this fast remortgage. Sometimes the borrower would be left with a huge amount of debt, which could not be repaid, even with the sale of the home. Another risk is that usually the interest would be higher or the lending fees would be higher in order to compensate for the risk undertaken by the lender (The rise of the 100% plus mortgage, 2007).
Thus it could be seen that the demand for fast remortgage is increasing in UK, which would enable the borrower to acquire new property or reduce the debt he already has.