Unlocking Home Equity: Path to Prosperity or Road to Financial Ruin?

financial empowerment financial wellness personal finance money matters debt
Written By Caitriona Ellis

It is often said that your home is an asset and because of that some people remortgage their house and release some funds/equity to fund extension, property investment etc So is this a good thing to do or not? Watch Caitriona’s short vlog is explores this and how to assess whether this is a viable option for you.

https://youtu.be/Ah_DB7qa82E

This is something I have looked at a few times and have had different conclusions based on where I was.  And for those of you who haven’t come across this concept before, it’s the idea that let’s say you bought your family home for 300, 000 a number of years ago. And you had a mortgage of 250, 000 on it and you have now.

pretty much cleared it or there’s very little mortgage left on it. And in the meantime, your house has gone up to  500, 000. So you’ve got, let’s say 100, 000 pounds left in a mortgage and your house is worth 500, 000. So you have essentially got equity in your home of 400, 000 pounds.  And  in certain lenders, they will allow you to  Take a further mortgage out to release some of that equity.

So you have value in your house above and beyond significantly the value of your house versus the mortgage that you currently hold. And they’re basically giving you the opportunity to take more  money out. And to use that money for a different purpose. Now, depending on the lender, they may or may not allow you to do certain things.

So when I explored this a little while back with my lender, they allowed me to use it for home improvements  or to invest in  investment property,  buy, buy to let investment property. And that was fine, but there were other exclusions that they didn’t allow. So if you’re looking at this, it’s definitely best to explore it with your own lender, or if you work with a broker, they can do the heavy lifting for you and see what other options are on the market for you.

It may be prudent to stay with your current lender to minimize the charges, or if there’s an amazing offer with somebody else, but a broker is an amazing person to work with when you’re looking to assess. This is because they have sites generally over a widespread amount of providers in the market. They will have experience in this.

And instead of you having to research all of them individually, they will be able to  really reduce and filter down the information. That’s key to share with you on this.  Um, it’s also worth speaking with family and friends who had experience in this as to whether it’s a good thing to do or not. And the answer is that really there is no right and wrong on this.

Like many questions in this space. What is an amazing solution for one individual might be a nightmare for somebody else. There are women that I work with who, under no circumstances, would look at this as a potential strategy for their financial wellness, even though they potentially could be sitting on a huge amount of equity in their home.

The financial anxiety that that would give them by doing anything about this far exceeds any value that it would bring to them. And that’s a very open and shut case. And they’re very clear on why that wouldn’t work for them, even though the theory is yes, it absolutely could significantly make a massive leap in their financial wellness.

They’re not prepared to jeopardize the security and stability and safety of having their family home and the equity that they haven’t.  And that is absolutely fine. I totally understand why you would take one side or the other. The alternative is that you take that money amount,  um, whatever is allowable by your lender or a new lender out and you repurpose that money for, into another, another investment.

So whether that is in property or equities or something else, a sort of gold, then that’s something that you need to weigh up.  And as always with this space, um, it’s important to make it very clear this vlog, um, blog, anything that I do is based on my own personal experience and it is, does not form or constitute financial advice.

It is always worth speaking to a specialist in this space, like I recommended your, um, Broker is a great person to start with. If you don’t have one, look for a recommendation for one, and they can best advise you, um, compliantly in terms of what is the best situation for you. But ultimately, when you gather that information, the only person who can make an informed choice on this is you.

So when you take all the information on board, if this is something that you’re looking at, it again comes down to your choice. circumstances to what’s really important to you. So if safety, security are very important to you, then this may not be a strategy that you want to explore. And that’s absolutely fine.

There is no right or wrong in this. I can’t emphasize this enough. However, if you are somebody who financial wellness Is really a priority right now and you want to accelerate that as quickly as you possibly can and you’re prepared to to do that and to explore the strategy, then that’s something that you know you should explore with an expert advisor and see whether it makes sense for you to do and run the numbers.

On the scenarios in terms of, well, if I do a, or if I do B, how will that work out and do always have a worst case scenario situation built in so that you understand the implications if something goes wrong as to whether you can deal with the fallout from it. And that’s really, really important in looking at this, because when it’s your family home,  it’s something that  is very important to most people and is not something that they want to put in jeopardy.

So. But equally, I see people on a regular basis do this and do this really effectively. But you, if this is a strategy you’re going to explore, it’s something you need to do with your eyes wide open, because there is risk with absolutely everything. And you need to be comfortable with that. And if you’re not, then absolutely stay clear of it.

And just focus on other ways to increase your financial wellness. And there’s many other ways that you can do it. This is just one way. to look at it and it can um, accelerate your family to wellness if that’s something that you are comfortable with. So I hope this was of help to you. I hope that it provided clarity either way as to whether this is something it’s definitely not something you want to explore or whether it is something that you’d like to tease out with a broker and talking to family friends and seeing whether it fits and works for you or not. 

To Your Financial Wellness,

Caitriona

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