As a homeowner, you own a property. And this property has built up some equity because you have been responsible and paying the monthly installments. You then borrow against the equity. Note that doing so may lengthen the duration that is required for you to pay off your home loan. So don’t borrow unnecessarily. You end up paying high interest to the lenders for no good reason.

But are there situations where the extra cash will come in handy? Sometimes, due to unforeseen circumstances, financial situations change. Here are 5 situations that may provide good reason for borrowing.

Situation 1: Home renovations.
Situation 2: Start a business.
Situation 3: Temporary loss of job.
Situation 4: Making an investment.
Situation 5: Buying a big ticket item that you need.

Situation 1: Home renovations.

Many home owners borrow against their home equity to make further improvements to their home. Be sure to use the cash wisely and not splurge unnecessarily on luxury improvements. Instead, focus more on practical aspects, like improving energy efficiency of the home. This leads to long term savings. Also, making improvements generally improve the overall value of your home. So you may be taking up a small loan to do up the home, but it’s a great investment because the value increases by much more.

Situation 2: Start a business.

You saw a money making opportunity but the business requires some start-up capital which you have problem coming up with. So you take up a home equity loan so that you can take advantage of the opportunity. But make sure that you know what you are doing. Be mindful that if your business fails, you still have to pay back the loan! So do your homework, and if you are truly confident, then take the loan.

Situation 3: Temporary loss of job.

You are a well educated professional who has been unfortunate. You lost your job due to a recent downsizing campaign through no fault of yours. But you still have a family to support and take care of. So what do you do? You can choose to borrow a small amount from the bank just to tide you over these tough few months. Usually, in such situations, you take out the loan only after your savings have depleted. It’s not very comfortable to take on a loan, especially when you are jobless. But it’s a necessary move. When you land yourself a good job some time down the road, you can always repay the loan quickly.

Situation 4: Making an investment.

This is similar to starting a business. But in this case, you are making an investment – e.g. buying some stocks when the time is right. All investments contain inherent risks. So be sure to be tread with caution before plonking down your hard earned money. In general, it’s wiser to avoid investments that are speculative in nature.

Situation 5: Buying a big ticket item that you need.

You need a car to commute to work or you need a heater or fridge in your home. Forking out several thousand dollars at one go is something you can’t do at the moment. But you need that big ticket item! A home equity loan may just be the solution you need.

Learn more about Home Equity Lending and Home Equity Loans.

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It is now becoming more apparent that whereas equity release was once considered a lifetime mortgage, people ‘temporarily’ have the opportunity to take advantage of one of providers’ shortcomings in its plan features.

As equity release has been designed to run for the rest of the person’s life, lenders have always seeked to include potentially heavy early repayment charges, should the scheme be redeemed early.

This penalty could be either linked to the change in government gilt rates, expire after a set number of years or as we shall discuss; linked to the Bank of England base rate.

It is this feature that has provided a window of opportunity should people over 55 require short term borrowing facilities.

Experience has recently shown that retired clients are now struggling in retirement; income from investments has fallen, annuity rates are not favourable & pensions are falling in popularity with more reliance on fund performance & contributions than defined benefit schemes.

Increasingly more debt is also evident in this age group & control of finances is becoming more difficult to manage in the present economic climate, credit cards & loans seeming the preferred choice.

Nevertheless, there are options available that can resolve these issues – part time work is becoming more apparent to increase retired incomes. Better management of debts & more consumer information being available as the silver surfers become more online savvy.

Advice on the suitability of equity release schemes will primarily discuss all these options & more. Should none of the alternatives be suitable from the client’s point of view, then at this point, equity release can be considered as a last resort.

However, another one of these options would be downsizing.

This would involve the emotive issue of selling a property that may have been a family dwelling for a generation. However, in order to raise the necessary funds required this may be the correct solution.

Unfortunately, this option may not provide an immediate resolution.

House sales are eventually beginning to rise, however this is marginal at present & for someone who requires funds as soon as possible, today’s marketplace could prove an obstacle.

But all is not lost – & this is where a temporary bridging facility is available & can be provided by a current equity release provider.

Subject to eligibility, the Prudential’s equity release schemes can meet this objective.

By releasing equity now with Prudential you would be benefiting from their link with the Bank of England base rate & early repayment charges.

In summary, the Prudential equity release schemes will only levy a penalty should the Bank of England base rate fall from inception to the time of repayment. With this rate at an unprecedented low rate of only currently 0.5%, it is highly unlikely (but not impossible) that the rate would be lower than 0.5% in the future.

It can therefore be safely assumed that if either of the Prudential’s equity release plans are taken out, whether it be their single lump sum product or innovative increasing cash reserve plan, NO early repayment charge would apply.

Therefore, this can be great news therefore for people who have debt issues or need access to short term funds & not have it affect their tight budgetary constraints. With no monthly repayments required, clients can raise funds this year & after a 12 month period could repay in full or partially, with only a deeds release fee of £105 being levied.

This could tie in conveniently with the property market improving around this period of time.

With Prudential’s interest rates currently as low as 6.3%, this is an excellent time to consider this form of borrowing for eligible people over age 55.

So while the Bank of England base rates remains at just 0.5% it would be advisable to consider the Prudential plan as a means of short term borrowing or bridging finance, depending on requirements.

The Prudential’s Increasing Cash Reserve plan comes with a free valuation & £300 cashback on completion until 31st December 2009.

So all’s not so gloomy in the equity release market as some would suggest.

About The Author:
Mark Greggs is the founder of Equity Release Supermarket who were recently accredited ‘Best Financial Advisers’ at the Equity Release Awards 2008.Mark is an experienced Independent Financial Adviser who has now been providing quality equity release advice for the past 8 years.

Gained with this experience is exclusivity to deals with some of the UK’s leading financial providers.
Mark aims to pass on his experience in assisting the over 55’s decide whether equity release is the right choice for them. For further information or to compare equity release deals available go to: -

w: http://www.equityreleasesupermarket.co.uk
e: mark@equityreleasesupermarket.co.uk

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