Equity release can be used for a number of different purposes, and for some, it may be an appealing option if they have debts to pay off. This could be any kind of debt, from a mortgage to unsecured loans. The benefit of equity release is that many places will give you an option of withdrawing a lump sum or small amounts at a time. You will be able to remain living in your home and this tax-free cash can be used for whatever purpose you choose.
However, before a lender gives you an equity release offer they will want to perform a credit check as part of the initial application process. Debts on your property, such as a mortgage in arrears, will have to be paid off in full once your equity release cash has been released. This will usually be done by the solicitor before they transfer you the net funds.
Credit card debt and equity release
Credit card debt is not something lenders are usually concerned about when looking at applicants. This is because no monthly payments are required with equity release. The money is paid back when you die or enter long-term care. If you have a poor credit score you are still likely to be able to get equity release. Most lenders will be more concerned about the condition and future saleability of your property.
How can equity release help if you are in debt?
- It can help you pay off some or part of your debts if you are being chased for payment by creditors.
- It may stop creditors from taking legal action against you.
- It may help if you are on a low income and have no other capital available.
- It can help you clear the debts which are a top priority and which may be charging you a high level of interest
It is always worth seeking advice from a qualified financial adviser when considering equity release. You do not have to go for the equity release option. However if you want to go ahead with equity release you need specialist advice from an equity release adviser. This is especially important if you do have a number of debts to pay off. Try to separate your debts into priority and non-priority debts. Priority debts are those such as your mortgage, gas and electricity and council tax. These are debts that, if not paid, will either result in you losing something e.g. your home or heating, or legal proceedings.
Different types of debt
Non-priority debts are those such as credit cards, store cards or unsecured loans.
It is still possible to get equity release if you have arrears. If they are mortgage arrears you will need to pay these off once you have received the released cash. A lender will take into consideration the nature of any unsecured debts and may ask you to also pay these off to avoid any legal action being brought by creditors.
A lender will also check your credit record. If there are any County Court Judgements (CCJs) – unpaid debts – against your name they will require that these are settled. Different lenders may have differing options for when these are paid off, whether this is before they release the cash to you, or after.
We advise that you inform your financial advisor of any CCJs or individual voluntary arrangements (IVAs) before making an application for equity release. Debt support is available from organisations such as stepchange.org and nationaldebtline.org.
:: Use our Equity Release Calculator to work out how much cash you could release.
It is important to take expert advice on equity release before deciding whether it is right for you. Contact us to find out more from one of our highly trained advisers.
