It happens to many people, they fall behind on their mortgage for one reason or another. This can be from a job loss, death in the family, injury or medical bills or any other reason. When it happens it can be very scary and difficult to figure out what to do. Part of what happens is that there are the mortgage arrears to deal with as well. Falling behind is never easy and can be the worst feeling and situation to go through. However, there are options and ways that the situation can be handled.
One option is an equity release scheme to alleviate the arrears on the mortgage. An equity release scheme allows the borrower to take out the equity that is in the home. This then can be used to get caught up on bills and other financial obligations.
This can be the best option many times, especially if there is a substantial amount of equity in the home that can be used. It can be used for that temporary time of unemployment or injury and once the person is back up and moving or back to work, making payments will no longer be a problem.
Releasing Equity for Younger Generations
Often times the discussion of equity release is centred on over 55s with lifetime mortgages and home reversion plans. However, if you are not yet 55 it would be difficult to take out a lifetime mortgage. In fact many individuals who have finally hit retirement age have already paid off their mortgage and just wish to live a more comfortable retirement.
This does not mean that equity release is specifically for someone who is older, just that the products often in discussion may lead you to think so. When discussing job loss, mortgage arrears, and other issues of debt and you are not over 55 you still have options called a release of equity.
It works a little different than equity release for over 55s because anyone can take out equity if they have a home. Age is not going to play a factor unless the person is taking out a standard interest only mortgage and would become 75 years of age during the mortgage. Most standard interest only mortgages do not lend to someone over 75 and want it paid off before then as retirement would be a factor.
The Standard Equity Concept
Given that you can end your mortgage debt and other debts with equity in your home it pays to understand what this entails. Equity is determined by the loan to value ratio in a home. If you have a mortgage of £100,000 and the home is worth £300,000 then you have an equity total of £200,000.
No company is going to lend you the entire equity amount. There are issues like interest that will need to be attached to your monthly payment. This is the investment return the lender receives for providing you with a loan. Plus when you already have issues with job loss, credit card debt, and mortgage debt it is better to take what you may need for a 12 month period.
Get yourself set up to pay your debts and still retain an affordable mortgage payment. After all without a job you still have no income coming in and you are using some of that money to make certain your mortgage payment is made.
Alternatives to Equity
You do have alternatives to taking out a second loan as an equity loan or refinancing your original mortgage so you can release equity. You can downsize your home. By downsizing you would have a smaller mortgage. With a home that is more affordable and the rest of the value from your sale you could take out a smaller mortgage on the new home and use the entire equity you had for other areas of your life without having to pay it back. However, if you are unwilling to downsize then you may need to find alternatives plus an equity release to get through your rough patch. Settling your debts with the credit card companies and other debt collectors can be a way to eliminate debts, without paying the entire amount and at least making it slightly easier to get back in line with mortgage payments.
No matter what decision is made, you should check your options immediately and talk with your lender as well. The sooner the situation is handled, the sooner a solution can be created for your mortgage arrears.