Remortgage, Equity Release, Refinance help

bery_451

Hi,

Are all these 3 words mean the same thing? If not...

On a freehold property that is debts/mortgage been paid off on it (cleared), the question is if I want liquid cash from it without selling the whole house then what financial service I go for that has the lowest rates?

How does the following scenario works? As we all know house prices have gone up so will the lender use current valuations to lend me a certain % of liquid cash against the current value of my home?

For example in 2018, Home price is £100k, in 2021 now its gone up to £150 so if I borrow 50k against the 150k house, that means the lender has 1/3 equity of the house? However if the house price comes back down to 100k then how will that work? Will the lender still own 1/3 of the house of any market value as long the loan has been paid off?

[Deleted User]

It means that the lender effectively has 50% equity. 

The sale of property would need to clear the mortgage first, anything left goes to you.

If there is no borrowing secured on the house, you have 100% equity.

Ebe_Scrooge

As above, really.  If you currently have no mortgage on the house, i.e. you own it outright, then fluctuations in its value are of little significance.  If you secure a loan of £50k on it, then you need to repay £50k (plus interest, of course).  So if you borrow £50k today and sell the house next year for £150k, you'll get £100k and the lender gets their £50k back (ignoring interest for the sake of illustration).  If you only sell it for £80k, the lender still gets their £50k, leaving you with only £30k.

If you win the lottery next week and pay off the 50K immediately, then whatever the house sells for - at the point you sell it - is yours to keep.

The only relevance the value of the house has, really, is at the time you take out the mortgage.  Broadly speaking, the less you borrow in relation the the house's value, the better deal you're likely to get.

Depends what you want the money for as to whether it's worthwhile, of course.  Being mortgage-free and owning a property outright is the ultimate dream/goal for a great many ordinary people.  If you're fortunate to be in that position already, it's wise to consider very carefully why you want the money.  You must also bear in mind, of course, at the moment your house is - well - as safe as houses.  If you've got a loan secured on it, and you find yourself unable to meet the repayments for whatever reason, you could find yourself without a roof over your head.

I don't know your circumstances, and it's not my place to pry - just offering some food for thought.

bery_451

Deleted_User said:

It means that the lender effectively has 50% equity. 

The sale of property would need to clear the mortgage first, anything left goes to you.

If there is no borrowing secured on the house, you have 100% equity.

Okay when you say no borrowing secured on the house, that means borrower puts up no collateral and what such financial products/services are available for no collateral loans? Is it just unsecured loans and if so what's the max unsecured loan a borrower can get on a excellent credit rating?

Okay do you mean if the borrower defaults when the house market value comes back down to 100k then the lender will enforce sale of the property to pay off the remaining debt owed regardless of market value of the home correct?

But lets say borrower defaults when the house market price rise to 200k? The borrower still gets 150k from the enforced home sale correct? 

[Deleted User]

It make no difference what the value of your home is when you default.  The lender will look for you to make repayments and can ultimately force a sale to get their money back if you don't.

Maximum borrowing isn't determined by credit ratings but by how a lender assesses you for risk.

bery_451

Ebe_Scrooge said:

The only relevance the value of the house has, really, is at the time you take out the mortgage.  Broadly speaking, the less you borrow in relation the the house's value, the better deal you're likely to get.

Okay what do you mean by this? Do you mean the less I borrow against the market value of my home the better interest rate I will get? 

So for example if current market value of home is 150k, I borrow 10k against it then I get like low 2% interest rate and if I borrow higher 50k then interest rate goes up to like 5%?

Ebe_Scrooge

bery_451 said:

Ebe_Scrooge said:

The only relevance the value of the house has, really, is at the time you take out the mortgage.  Broadly speaking, the less you borrow in relation the the house's value, the better deal you're likely to get.

Okay what do you mean by this? Do you mean the less I borrow against the market value of my home the better interest rate I will get? 

So for example if current market value of home is 150k, I borrow 10k against it then I get like low 2% interest rate and if I borrow higher 50k then interest rate goes up to like 5%?

Errmmm - broadly speaking, yes, kind of.  Any loan, whether a mortgage or unsecured loan, is dictated - very roughly - by 2 factors.

Firstly, how likely are you to make the loan repayments, each month, on time, with no hassle to the lender.

Secondly - if you don't make your loan repayments, how will the lender get their money back from you?

With a secured loan (e.g. a mortgage), it's easy - the lender repossesses your house, gives you a cardboard box to live in, and sells the house to recoup what you owe them.  If they've lent you £10k against a house worth £150K, it's a good bet they can sell the house for "peanuts" at an auction and still get their money and expenses back.  If they've lent you £95k against a £100k house, they may still be out of pocket after legal fees and selling the house at auction for a knock-down-price.

With an unsecured loan it's harder for them - long drawn-out court proceedings, bailiffs fees, whatever ... they may never recoup what they're owed.  That's why they charge more interest for an unsecured loan vs a secured loan - it's all about their risk.

With the greatest respect, it seems as though you're asking questions from a point of view of desperation, or at least ignorance of how lending works.  I would urge you to explain clearly the reason for your questions, what you want the money for, and there are many good folk on here who can help.  But simply "releasing equity" from a wholly-owned asset is not a step to be undertaken lightly if you don't understand the wider implications.

I sincerely don't intend to be condescending - it's just that the tone of your questions worry me.

Pixie5740

bery_451 said:

Hi,

Are all these 3 words mean the same thing? If not...

On a freehold property that is debts/mortgage been paid off on it (cleared), the question is if I want liquid cash from it without selling the whole house then what financial service I go for that has the lowest rates?

How does the following scenario works? As we all know house prices have gone up so will the lender use current valuations to lend me a certain % of liquid cash against the current value of my home?

For example in 2018, Home price is £100k, in 2021 now its gone up to £150 so if I borrow 50k against the 150k house, that means the lender has 1/3 equity of the house? However if the house price comes back down to 100k then how will that work? Will the lender still own 1/3 of the house of any market value as long the loan has been paid off?

The lender doesn’t have any equity and the lender does not own any of the property. The lender has a loan secured against the property which is not the same as having any equity or ownership. 

Depending on your age you would either be looking at a mortgage for an unencumbered property or equity release.  

bery_451

Ebe_Scrooge said:

bery_451 said:

Ebe_Scrooge said:

The only relevance the value of the house has, really, is at the time you take out the mortgage.  Broadly speaking, the less you borrow in relation the the house's value, the better deal you're likely to get.

Okay what do you mean by this? Do you mean the less I borrow against the market value of my home the better interest rate I will get? 

So for example if current market value of home is 150k, I borrow 10k against it then I get like low 2% interest rate and if I borrow higher 50k then interest rate goes up to like 5%?

Errmmm - broadly speaking, yes, kind of.  Any loan, whether a mortgage or unsecured loan, is dictated - very roughly - by 2 factors.

Firstly, how likely are you to make the loan repayments, each month, on time, with no hassle to the lender.

Secondly - if you don't make your loan repayments, how will the lender get their money back from you?

With a secured loan (e.g. a mortgage), it's easy - the lender repossesses your house, gives you a cardboard box to live in, and sells the house to recoup what you owe them.  If they've lent you £10k against a house worth £150K, it's a good bet they can sell the house for "peanuts" at an auction and still get their money and expenses back.  If they've lent you £95k against a £100k house, they may still be out of pocket after legal fees and selling the house at auction for a knock-down-price.

With an unsecured loan it's harder for them - long drawn-out court proceedings, bailiffs fees, whatever ... they may never recoup what they're owed.  That's why they charge more interest for an unsecured loan vs a secured loan - it's all about their risk.

With the greatest respect, it seems as though you're asking questions from a point of view of desperation, or at least ignorance of how lending works.  I would urge you to explain clearly the reason for your questions, what you want the money for, and there are many good folk on here who can help.  But simply "releasing equity" from a wholly-owned asset is not a step to be undertaken lightly if you don't understand the wider implications.

I sincerely don't intend to be condescending - it's just that the tone of your questions worry me.

You sound like a lender about to lend to me 

Do you have unsecured 50k to borrow me? If yes I answer your questions, they are:

Firstly, how likely are you to make the loan repayments, each month, on time, with no hassle to the lender.

Secondly - if you don't make your loan repayments, how will the lender get their money back from you?
What you want the money for?

Jokes aside, if someone came up to me asking for a 50k secured loan backed by 200k assets collateral then what are you worried about or what should I be worried about? Unless its unsecured then there should be worry right?

I doubt the auction & legal fees will make a loss to a lender for a straight up normal repossession. Legal fees means if the borrower disputes against the lender correct? What legal dispute can there be possibly be on a borrower defaulting? I don't understand.

bery_451

Pixie5740 said:

bery_451 said:

Hi,

Are all these 3 words mean the same thing? If not...

On a freehold property that is debts/mortgage been paid off on it (cleared), the question is if I want liquid cash from it without selling the whole house then what financial service I go for that has the lowest rates?

How does the following scenario works? As we all know house prices have gone up so will the lender use current valuations to lend me a certain % of liquid cash against the current value of my home?

For example in 2018, Home price is £100k, in 2021 now its gone up to £150 so if I borrow 50k against the 150k house, that means the lender has 1/3 equity of the house? However if the house price comes back down to 100k then how will that work? Will the lender still own 1/3 of the house of any market value as long the loan has been paid off?

The lender doesn’t have any equity and the lender does not known any of the property. The lender has a loan secured against the property which is not the same as having any equity or ownership. 

Depending on your age you would either be looking at a mortgage for an unencumbered property or equity release.  

What does unencumbered property mean?

On a secured loan against the house collateral the lender has no ownership or equity in the house however can repossess the house & enforce sale of the home if borrower defaults. From this sounds like the lender does have power/ownership.

I'm just looking for the best rates regardless of what type of financial product or service.

[Deleted User]

bery_451 said:

Ebe_Scrooge said:

bery_451 said:

Ebe_Scrooge said:

The only relevance the value of the house has, really, is at the time you take out the mortgage.  Broadly speaking, the less you borrow in relation the the house's value, the better deal you're likely to get.

Okay what do you mean by this? Do you mean the less I borrow against the market value of my home the better interest rate I will get? 

So for example if current market value of home is 150k, I borrow 10k against it then I get like low 2% interest rate and if I borrow higher 50k then interest rate goes up to like 5%?

Errmmm - broadly speaking, yes, kind of.  Any loan, whether a mortgage or unsecured loan, is dictated - very roughly - by 2 factors.

Firstly, how likely are you to make the loan repayments, each month, on time, with no hassle to the lender.

Secondly - if you don't make your loan repayments, how will the lender get their money back from you?

With a secured loan (e.g. a mortgage), it's easy - the lender repossesses your house, gives you a cardboard box to live in, and sells the house to recoup what you owe them.  If they've lent you £10k against a house worth £150K, it's a good bet they can sell the house for "peanuts" at an auction and still get their money and expenses back.  If they've lent you £95k against a £100k house, they may still be out of pocket after legal fees and selling the house at auction for a knock-down-price.

With an unsecured loan it's harder for them - long drawn-out court proceedings, bailiffs fees, whatever ... they may never recoup what they're owed.  That's why they charge more interest for an unsecured loan vs a secured loan - it's all about their risk.

With the greatest respect, it seems as though you're asking questions from a point of view of desperation, or at least ignorance of how lending works.  I would urge you to explain clearly the reason for your questions, what you want the money for, and there are many good folk on here who can help.  But simply "releasing equity" from a wholly-owned asset is not a step to be undertaken lightly if you don't understand the wider implications.

I sincerely don't intend to be condescending - it's just that the tone of your questions worry me.

Do you have unsecured 50k to borrow me? 

You borrow. The lender lends.

It's really important to know the difference.