How to Get an Over-Equity Loan
What it is
| At a Glance | |
|---|---|
| Loan Type: | Mortgage |
| Lender: | Bank |
| Secured: | Yes |
An over-equity loan is a loan that allows homeowners to unlock cash from their home equity. This type of loan is also called home reversion. With the over-equity loan, homeowners sell all or part of their home to a reversion company and are given a lifetime lease on the property. When the borrowers die, the proportion of the home that was sold becomes the property of the reversion company. This results in people getting only 20 to 60 percent of their home's value. Anyone can sell a home reversion and this has resulted in increased over-equity loan sales.
Similar to the over-equity loan and less risky is the lifetime mortgage, which is regulated by the FSA. With lifetime mortgages, borrowers receive a lump sump or draw regular amounts against the value of their home. The interest is rolled up and added to the loan, which is repaid at the time of the borrower's death or when they enter long term care.
Who it's for
An over-equity loan is for people who need some extra money for retirement. Demand for over-equity or equity release plans is expected to soar in coming years as people fall back on them to top up dwindling pensions and retirement funds. This type of loan is generally for elderly people or people approaching their retirement years. Lifetime mortgages are a more attractive type of over-equity loan because they carry less risk.
What you need to do to apply
In order to obtain an over-equity loan, interested applicants will need to contact a local lending institution and inquire about the different options and rates available. Personal and financial history, including a credit report, will need to be made available to the lending institution. A property appraisal may also be required.