Once your mortgage term is up you’ll have the option to remortgage to a distinct or different lender with (hopefully) better rates of interest and terms. As part of any remortgage, most lenders give you the option to release some of the equity of your house and still have it as cash lump value. While this is a very tempting option for a number of people, especially those who are in debt or require a home renovation, a new car, or other luxuries, there are numerous pitfalls with going down this kind of route.
Let us take a glance at an example of whether issuing equity is financially feasible over a personal loan for a similar amount. Let us assume a couple wants to release $10,000 using their home equity. At a 3% interest rate on their remortgage, this will add around $50 – $60 extra 30 days to their mortgage bill over a 20-year period. In contrast, a personal loan of the identical amount over a five 12 months period will add around 3 times that amount – $180, 30 days over a 5-year period (assuming a mortgage of around 4. 5% APR).
On paper, this looks great and appears like the most sensible option. On the other hand, over the borrowed period, releasing the equity will set you back around $7, 000 in awareness, whereas the personal loan will be around $2,000 which is usually $5,500 less.
As a long-term plan, the releasing of equity in the remortgage is a bad idea due to the very large amount of total interest accrued despite the fact the monthly payments are far lower. If your goal is to be debt-free and mortgage-free immediately then releasing equity simply does not work properly unless that money is essential for emergency purposes.
Ultimately, remortgaging and releasing a dollars lump sum from your house has pros and cons, and whether you should take action or not depends very much on the current financial situation.
This website uses cookies.