Equity Is Not, Free Money, After All

Category: Finance, Mortgages.

Many homeowners are remortgaging their homes in search of a better and rate and saving a few thousand pounds every year.

As well as reducing your monthly payments, you can also use remortgaging as a way of releasing some equity that has built- up in your property s value. However, remortgaging doesn t have to be just about saving, if can also be about borrowing a little more. The advantages of borrowing through your remortgages is that it can work out much cheaper and the loan is secured against your home. You also have to make sure that when borrowing through a mortgage, you have to make sure that you will be able to keep up with additional payments. However, before you are tempted to go down this route to finance your new kitchen or other renovations, it is still important to be financially cautious even if the rates appear to be low. If you fail to make a payment, you could be risking losing your home. Currently, homeowners are borrowing over �15 billion a year against their homes to splurge elsewhere such as holidays and new cars.

The first step, as always is to check the terms and conditions of your existing mortgage and be certain that your financial situation will not change for the worse in the near future. Mortgage equity withdrawal totaled �47 billion for 2006 as a whole, up from �36 billion jus tone year previous. The figures suggest that in the short- term, the recent strength in the housing market will support consumer spending and despite higher interest rates, households are still keen to withdraw money tied up in their house. Economists suggest that rising mortgage equity withdrawal could bolster consumer spending on the High Street and turn into more debt. Every penny that you borrow against your home puts the roof over your head at risk. Homeowners also commonly use remortgages equity withdrawal to fund improvements to their property and repay credit cards, personal loans or consolidate other debts.

Although it may be cheap to borrow against your home, the risks are far greater, especially if you can t keep up your repayments. However, depending on your age, mortgage equity withdrawal can work to your advantage as you could use the extra cash to invest elsewhere. UK house prices are still rising strongly, and are rising by 8 per cent in the space of a couple of months, keeping the annual rate of house price inflation at about 10 per cent. However, if you are nearing retirement if would be a bad idea to take on more debt which is becoming harder to pay off with pension allowances. This means, what ever money you pour into your house, you are almost guaranteed to get in back in the selling price if you should choose to move. Although it is easy enough to obtain this extra cash, spend it wisely and concentrate on investing rather than throwing your hard earned equity on lavish holidays you usually couldn t afford.

Adding value to your home by renovating or making improvements that will eventually drive up the selling price. Equity is not, free money, after all.

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