The Benefits of an Equity Release Loan

Equity loans are optional loans provided to homeowners who want to use their home as collateral counted as a promise against a new loan. The equity release loans are a sort of flex loans that offer large amounts of cash to homebuyers against the value of their homes. These loans often come in two forms–either an “equity release mortgage plan,” or “equity release home reversion plan.”

The disadvantage of selecting an equity release mortgage plan loan is that age is the ultimate aspect weighed out when the lender decides to give you the loan. In other words, if you are fifty, then you will pay higher interest rates and higher mortgage repayments.

Equity release home revision plan loans, on the other hand, are a mixed bag assessment, since they are are not biased of age, yet on the other hand the lenders show prejudice since the applications are not usually granted for anyone under the age of sixty.

Equity release loans are regulated loans, and if you have negative equity on your home, you are subject to pay high costs. On the other hand, if the equity on your home drops, so will your mortgage. “This means that in the event of the value of your property decreasing, the debt will also decrease; in addition, this will ensure that any outstanding debt, after the sale of your property, will not be passed on to your next of kin.”

Be aware that equity release loans often attach hidden charges, including solicitor fees, legal charges, surveyor charges, setup costs, redemption charges and maintenance fees. For the most part this loan is another form of debt, but it may be a worse form of debt than that which you currently owe.

There are various loans available on the market offering generous low payments; thus checking the market is often wiser than jumping headlong into the first offer you get.

How Do I Know Equity Release is For Me?

In my line of work as an independent financial advisor, I am often asked many questions about the financial product equity release. One of the most asked questions is a simple one; "Is equity release for me?". I get asked that question lots because I feel it is the most important question you can have about equity release. If you do not know why you would need equity release then it is not for you; it's as simple as that. So the best bit of advice someone can get about home reversion and equity release mortgages is this: think long and hard for a reason why you need equity release.

Most of the time, this will be obvious and will come to mind straight away. However, other times you will have to think about it. The golden rule then is that if you have to think for a long time, then chances are equity release is not for you. Reasons to release equity are countless. You may need some extra money to travel around the globe. You may also need some cash to help fund your grand children's education or to give some money to your children to help them through this turbulent economy and the troubled times ahead. You may want to buy a holiday home closer to your family so you can take extended trips.

These are all valid reasons to take out home reversion plans and equity release mortgages. What do they have in common? Nothing much. All they have in common is that they are real and genuine reasons to release equity. Without a valid reason, you should not take out equity release mortgages or home reversion plans - full stop. A reason is as good as any other but you must first have a reason. Answering the question is equity release for me is as simple as knowing why you want it and calculating the relevant risks.

Bank Loan Funds

As interest rate climb, most bond owners are shaking their heads. The price of existing bonds falls when rates are on the rise. There is a way to offset the decline. You can invest in bank loan funds, also known as floating rate funds. There is a risk to these funds, but they can be a rewarding alternative to traditional fixed-income investments.

Bank loan funds are made up of loans made by banks or other financial institutions to companies. They are often below investment grade. They aren't really fixed income; there is the potential of losing money. The funds can provide a return equal to or better than high-yield money market accounts. The loans that make up the funds are short-term. This allows the lenders the opportunity to frequently raise the interest rate. This helps the funds keep pace with interest rate changes and helps keep the principal more stable than with a typical bond fund.

According to many portfolio managers, the way the loans are structured removes a lot of the risk to investors. The loans are secured by cash or assets. The funds are not independently rated, but experts say the bank should be able to show you the performance of the fund. The bank will
package the loans and sell them, and the funds come into play.

Ban loan funds are senior loans. If the company defaults, senior loans must be paid back before bond holders are. You may not receive enough to cover your initial investment, but something is better than the nothing you could receive with a high-yield bond. Typically, in the case of default, the investors will recover 75 to 80 cents on the dollar.

The change of losing principal is reduced because the interest rates on the loans reset very quickly. Short-term interest rates rise and fall in response to the Federal Reserve. That, combined with the short terms of the loans, makes for a fund that responds quickly to the rise and fall of interest rates.

Many brokerages, including Merrill Lynch and Eaton Vance, sell bank loan funds. In certain asset classes there may be a high expense ration. Make sure that you check every fund out carefully.

Many funds in this group allow investors to buy shares at any time. There are some funds that will allow you redemptions at any time, while others will restrict you to monthly or quarterly redemptions.