Home Loans

Is a Home Equity Loan Worth Considering?

A home equity loan allows you to release some equity in the home that you own. It is usually something which is considered once a mortgage is paid off and the homeowners want to release some of the equity tied up in their home. This could be to allow them to have a better quality of life, to give to family or to enjoy. Some people are very much against them but there are others that are really keen on them.

The main reason for people not liking home equity loans is because they think that they do not give good value. They do work in different ways depending on the lender so this could help to determine whether they are good or not. However, basically you will be able to money released form the value of your home and when you no longer need it, it will be sold and the loan repaid from the proceeds of the sale. In some deals the whole home is bought outright but the sellers can live in there and pay rent. In other deals a percentage of the value is given in a lump sum or sometimes several lump sums are given at different time.

Many financial advisors will advise against this sort of loan. They feel that they are not good value because you do not get back the same value of the house compared to what you would get if it was sold normally when no longer needed. This means that if you were hoping to pass it on to someone, it will not be worth so much. Therefore it means that your assets are very much reduced which is not a financially savvy thing to do.

However, decisions like this are not always about the money, but often about the specific situation you are in. It might be that you have no one to leave your home too and so feel like you may as well spend the money contained within it and have a enjoyable time with it. You may desperately need the money and so feel that by releasing some capital in the home you can get it. You may wish to pass the money on early so that you can watch your family enjoying it.

There are alternatives though which might be more financially savvy. You could downsize, meaning selling your home, moving to a cheaper one and releasing the money that way. This assumes that you will be happy in a different home and that you are prepared to move. You could rent out some of the rooms of your home, if you have empty ones, to generate some income. You could borrow money using a cheaper type of loan and the home as collateral, but this may not be easy to do as lenders tend to like borrowers to have an income and often this is not the case for those wanting to release some equity in their homes. They can often have very few options to get some money if they want it.

It is therefore difficult to decide whether equity release is a good thing or not. It very much depends on the individual situation, what they want the money for and how much they have available. It is worth noting too, that it is possible that the house will need to be sold to pay for care in old age anyway and so perhaps releasing some equity in it and spending it before this happens could mean that the money would actually be enjoyed by those that earned it rather than being paid out for care. However, it might be that having money available to pay for a carer or care home would be preferable so that more of choice would be available rather than just relying on what the local council had to offer.

There are lots of factors to consider. It is wise to spend a lot of time making this decision and thinking about the pros and cons. It is also good to compare the different equity release deals available so that you are aware of what there is to choose from and how much they might cost so if you do decide to go ahead, you will be able to find the best possible deal to suit you and your taste.

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