Can I Release Equity if I am in Debt?

Millions of people around the world are struggling with debt. If you own your own home in the UK, then you might be wondering ‘Can I release equity if I am in debt?’

A recent study carried out by YouGov highlighted that a staggering 21% of all people who retired in the UK are still paying off the mortgage on their homes.

In fact, outstanding mortgage payments are the most common form of debt faced by those who are retired [1].

However, a number of retirees in the UK do also suffer from other forms of debt in the UK, such as credit card debts and other unsecured loans [1].

In fact, the Office for National Statistics [2] found that more and more people aged 65 or over are now facing financial debt.

This number is increasing steadily and has increased by 7.7% in the past two years. This totals 1.65 million people in the UK [2].

The ONS suggest that the main contributing factor to this is the increasing life expectancy. This means that pensions and savings no longer cover their costs, as their money is now expected to go further than initially anticipated [2].

Please call our 24-Hour Helpline: 0330 058 1579

Unfortunately, suffering from existing debt as you get older can add a lot of stress and anxiety, during which time you should be winding down, feeling secure and settled.

Due to the repayments, a lot of people across the UK are struggling to repay their debts, pay for their weekly food shop and other commitments due to their debt.

In addition to this, a lot of people also struggle to afford things that they have always planned to do in later life, such as family holidays.

If you are struggling from a debt issue, then you might ask yourself, ‘can I release equity if I am in debt.’

If you are suffering from debt during your later life and own your own home, then you might want to consider releasing equity from your home.

Releasing equity from your home is a great way to pay off your existing debts by using the money you have been ploughing into your home over a number of years.

It is important to understand that the funds that you receive from your equity release plan will be tax-free, and you are able to spend them in a number of different ways.

This includes paying off debt, paying off loans, paying off any car finances and helping family and friends with any debts or payments.

It is also important to understand that if you opt for equity release, then you will also be able to remain living in your home for as long as you want to. Just because you release equity from your home, you will not have to move out.

Trying to pay back loans and debts month by month can feel exhausting and never-ending. That is why receiving a lump sum from your equity release plan can be a fantastic way of paying back your debts quickly and once and for all.

Everyone dreams of a relaxing, exciting and enjoyable retirement, so don’t let debt and loans take over what should be one of the best times of your life.

Please call our 24-Hour Helpline: 0330 058 1579

What is equity release?

Equity release is when individuals release the equity that they have built up in their home over a number of years through monthly mortgage repayments.

The equity in your home includes your mortgage repayments, your deposit and the total value of your home. As you can imagine, these things combined can add up to a large sum of money.

Equity release allows you to access this money if you are aged 55 or over, if you own your own home in the UK and if you have built up a significant amount of equity and money in your home over the years.

Releasing equity from your home is also tax-free, and you can receive one large lump sum, or opt to receive a number of smaller, monthly payments.

If you want to release equity from your home to pay off any existing debts or loans, then speak to a member of the Equity Release Warehouse team for advice and support on how to release equity from your home.

Please call our 24-Hour Helpline: 0330 058 1579

What is classified as debt?

Despite what many people think, there are many different types and forms of debts. Debit is classified as something, usually money, which has been borrowed or lent to you from someone else. Usually, the lender is a bank, building society or other company.

People often take out debt in order to pay for something of large value that the individual simply does not have the funds to pay for now, or all at once. This includes a house, a car or things like a holiday or home improvements.

Whilst there are many different lenders and ways you can get yourself into debt, there are four main different categories of debt which includes secured debt, unsecured debt, revolving debt and mortgage debt.

Whilst lots of people take out a loan for good reason, such as a mortgage on a house, lots of people spend irresponsibly and find themselves in debt for many, many years.

Debt can be extremely hard to pay off, as every loan you take will charge you interest which can quickly turn into compound interest. This is why you should only get yourself into debt for things that you really, truly need.

Please call our 24-Hour Helpline: 0330 058 1579

1. Secured Debt

One form of debt is called secured debt. Secured debt is any form of debt that is used to buy an asset, and this asset can be used for collateral for the loan.

In order to qualify for this form of debt, you will need to undergo a range of different credit checks, so that the lender can judge how responsible and likely you are going to be to pay off this loan in the future, judged on how you have been in the past with paying any debts, loans or credit cards.

A secured debt ensures that the asset is pledged as an asset for collateral damage, should you find yourself in a position where you can no longer pay back the debt, meaning that they would take this asset off of you as a form of payment.

Examples of secured debt include a car loan or car finance. In this example, the lender or company will give you the car or the money to purchase it in return for a claim of ownership on the car should you stop paying the loan and debt back.

If you fail to pay the loan back, then the lender will take the car back off you. Generally, secured loans benefit from good interest rates.

Please call our 24-Hour Helpline: 0330 058 157

2. Unsecured Debt

Unsecured debt is another form of debt and borrowing. Unlike secured debt, unsecured debt does not have any collateral.

The lender will lend the money to the individual on the basis of trust and their previous credit score and history.

However, the lender and borrower both agree to sign a contract where they agree that they will repay the loan in full.

If the individual struggles to repay the loan, then the lender is within their rights to take you to court and reclaim the money that you owe them.

However, these court costs often cost the lender a lot of money, which means that they often avoid this and even charge higher interest rates in case this does happen.

An example of unsecured debt would include credit cards, signature loans, a medical bill or membership costs such as a leisure centre or gym.

Please call our 24-Hour Helpline: 0330 058 1579

3. Revolving Debt

Another form of debt is called revolving debt. Revolving debt is a form of loan agreement made between the individual and the lender which allows the individual to borrow a certain, limited amount on a monthly basis.

An example of revolving debt would include a credit card, which has a limit to the amount you can spend and requires monthly minimum repayments.

The individual is allowed to spend as much as they want within this limit, but the more you spend the more you are required to pay back each month.

The amount you are required to pay back each month very depends on the amount of the loan you have spent. Revolving debt is also usually unsecured debt, which means that there is nothing put down as collateral damage for this form of debt.

Please call our 24-Hour Helpline: 0330 058 1579

4. Mortgages

Whilst most people throughout the UK, most people do not realise, or do not look at mortgage as a form of debt. However, they very much are. Mortgages are the most common form of debt, and are used to buy homes and properties across the world.

The house is used as collateral should you no longer be able to pay the debt off, and most mortgages require individuals to pay back a percentage of the debt and mortgage loan each month. Mortgages benefit from the lowest form of interest rates.

Please call our 24-Hour Helpline: 0330 058 1579

Can I release equity if I am in debt?

Lots of people who are in debt over the age of 55 often question whether they are able to use an equity release scheme to pay off these debts.

The answer is yes. In fact, almost half of all people aged 55 or over who own their own home are considered equity release to prepare for retirement and pay off any existing debts.

Luckily, there is no maximum or minimum amount of debt you need to suffer from to consider using equity release to pay off these debts.

However, you are more likely to qualify for equity release if you do have debts if you are unable to pay off your debts any other way, such as through using your income.

You are able to use equity release to pay off many different forms of debt, including your existing mortgage, your credit cards, any other loans or finance agreements.

It is important to understand that any equity release advisor will need to check your credit score before they can approve you for a loan.

This is why it is incredibly important to be open and honest with your equity release advisor about any debt you might be in before you opt for a scheme, as you might be rejected if your credit score is too poor.

Please call our 24-Hour Helpline: 0330 058 1579

However, as long as your credit rating isn’t too bad, you will most likely qualify for equity release.

The best advice an equity release advisor can give you is to be honest with them about your financial situation, and any potential debts you might be struggling from.

All lenders would prefer you to be honest and open about your financial situation, rather than find out for themselves later during the credit score report.

It is important to understand that there are no monthly mandatory repayments to make if you take out an equity release plan, so this will not be adding to your monthly repayments or debt in any way.

You can opt to repay any interest monthly, or you can wait until you pass away to repay back anything you need to.

If your debt is a form of unsecured debt, such as a personal loan, then the lender will take this into account, especially if you have ever missed payments.

They will also need to take into account the total amount of money that you owe.

Lots of people across the UK have a CCJ. CCJ’s stand for County Court Judgements and are when you have a debt or a loan that you have not been repaying for a considerable amount of time.

The local court will issue an individual with a CCJ, and will state that it needs to be repaid as a matter of urgency.

Unfortunately, individuals will need to pay their CCJ within just 30 days. Otherwise, this debt remains on their file and credit score for a shocking 6 years before it is settled. Once this is settled, the equity release provider will be able to provide you with access to a scheme.

If you do have any CCJs on your file, then it is incredibly important that you are open and honest with your equity release advisor and equity loan provider before you opt for a scheme. This will not only save you time, but it will also save you money, too,

Please call our 24-Hour Helpline: 0330 058 1579

If your equity release advisor is informed of any CCjs, then they will be in the best possible place to find the right equity release scheme for you. If your CCJ is not declared early on in the process, then you might not qualify.

Additionally, if you have an IVA then you can also qualify for equity release. An individual voluntary arrangement is a form of agreement which allows you to make affordable repayment to pay off your debts. This is usually over a long period of time, such as 5 or 6 years.

Once the agreed arrangement is covered, any unsecured debts will be written off. However, if you opt for an equity release scheme, then you `will have to settle your IVA.

Whilst some equity release lenders will allow you to settle your IVA upon completion of the equity release scheme, some others ask you to clear your IVA before you even apply for an equity release scheme.

If this is you, then during the final year of your IVA it is best to speak to an equity release lender and provider about your next steps and whether you are now able to qualify for an equity release scheme.

Some people are forced into releasing equity from their home if they have an IVA, and lifetime mortgages are often the most common way to repay any remaining amounts owed.

The best thing about a lifetime equity release mortgage is that you do not have to make any monthly repayments, which means that you are not adding to your monthly repayments in any way.

If you have ever declared bankruptcy, then you will need to be officially discharged, which releases you from any outstanding debts and you are no longer restricted by your bankruptcy.

Unfortunately, if you have not been released from bankruptcy then you will not be considered for equity release by most lenders across the UK.

If you have ever been declared bankrupt then you will know that this stays on your file for 6 years. Therefore, if you are still declared bankrupt then you will have to wait until these 6 years pass before you can apply for an equity release scheme.

Please call our 24-Hour Helpline: 0330 058 1579

If I am in debt, how can releasing equity help?

If you are suffering from any form of debt, then applying for an equity release scheme can help you. For example, an equity release scheme might be enough to pay off all of your debt, so that you are no longer being chased for payments month after month.

Additionally, releasing equity from your home could prevent potential legal action from providers or lenders, if you have had to stop paying your initial debt and loan for whatever reason.

Paying off your debt with equity release can also prevent interest from building up, which quickly snowballs and compounds when you are suffering from a large amount of debt.

In addition to this, an equity release scheme will also provide you with flexibility when it comes to how you want to pay back any loans or debt you might for. For example, with an equity release scheme you are able to opt for either a lump sum or a series of other, smaller payments.

This means that individuals are able to control the way they pay back their loan. If they simply do not trust themselves to pay back the loan if they were to receive a lump sum, then they should opt for smaller, monthly payments, which can go straight towards paying back the loan.

However, some people opt to receive their equity release in one, large lump sum so that they can pay off their debt quickly and once and for all in full.

The great thing about equity release is that it allows people to remain living in their home whilst they receive their equity release funds.

This comes as a huge relief to people who are suffering from debt, as they are often worried about how their debts and any repayments they have to make will affect their life and their lifestyle. With equity release, your lifestyle is able to stay the same.

It is also important to remember that with equity release, you will not have to repay anything until you pass away, or move into long-term care.

Please call our 24-Hour Helpline: 0330 058 1579

What are the risks of equity release?

As with every loan, it is important to understand the associated risks.

Whilst you do not pay any tax on the amount of money you receive from your equity release plan, it has the potential to affect your tax position and how much you are entitled to when it comes to benefits.

For some people, there might be other, better alternatives such as selling up and downsizing to a cheaper and smaller house, so that you get to keep some of the money you make from the sale of your current house.

It is also important to understand that releasing equity from your home will also affect how much inheritance your family will receive after you die, as it affects the overall sale value of your home.

Taking out an equity release plan will also affect whether you qualify for other loans against your home in the future.

If you want a better understanding of the associated risks when it comes to equity release, then speak to a member of the Equity Release Warehouse for advice and support.

Please call our 24-Hour Helpline: 0330 058 1579

What are the alternatives to equity release?

Equity release is not always the best option for some people, depending on their situation. There are a number of different alternatives which might suit you and your family better.

For example, you could sell up and downsize your house, which would mean that you could sell your current, more expensive and larger home, buy a cheaper home and pocket the profit you make off of the sale of your home.

If you are currently struggling with debt issues, then you could always consider a repayment plan, where you make smaller repayments over a number of months or even years.

Alternatively, you could also consider an individual voluntary arrangement (an IVA).

If you are struggling with debt, then you should always seek help and advice from trained professionals. For example, you could speak to Citizens Advice or a debt charity such as Step Change for advice and support.

Please call our 24-Hour Helpline: 0330 058 1579

Contact the Equity Release Team

If you are suffering from debt, and are asking yourself ‘can I release equity if I’m in debt’ then speak to a member of the Equity Release Warehouse team for advice and support.

Our friendly and helpful team will work hard to find the very best equity release plans for you and your family. We will only suggest and recommend equity release plans that you are likely to qualify for.

It is important to remain completely honest with your equity release advisor, as they will need to know your financial situation, and reasons for wanting an equity release scheme. Otherwise, you might not get the best deal and equity release scheme for you.

Our equity release advisors will use our very own equity release calculator to make sure that you are making the right financial plan for you and your family.

If you are suffering from debt and are worried about your financial situation, you might want to consider releasing equity from your home.

If this is you, then why not contact our friendly and helpful advisors on 0330 058 1579 or by visiting us online at www.equityreleasewarehouse.com. It could change your life for the better.

References

[1] https://moneyfacts.co.uk/news/retirement/30-of-retirees-are-still-in-debt/

[2] https://www.ons.gov.uk