Releasing Equity from a Property

[Mairead]

I am a married woman with two children. My husband earns around 80,000 gross a year and I am a full time mum. We are finding it hard to manage financially at the moment and have a lot of outstanding loans and debts that are costing us a lot of money every month. We own our house which is valued at 400000, with an outstanding mortgage of 195,000 left on it. We have thought about releasing around 20000 from this to pay off our outstanding debt and just refinance our mortgage over a longer term. Can anyone advise if this is a good option and if it is even possible?

 

[RainyDay]

It probably is possible, but whether it is a good idea or not is a different question. By refinancing over a longer term, you will certainly be paying more interest to the bank over the lifetime of the debt. Some banks will allow you to add debts like this onto your mortgage, so you benefit from lower mortgage rates, but keep the repayments over a reasonably short term. You wouldn't notice a dramatic cut in your repayments with this approach.

You're probably aware that €80k is a pretty good income - Is there anything you can do to reduce your spending?

 

[Mairead]

Hi Rainy Day,

Thanks for that. Yes we are aware that we have a pretty ok income. The problem is that we have the few outstanding debts that seem to take up so much of our monthly outgoings. We also have no pension and I feel that if we were able to clear off some of the loans then we could free up money to pay into a pension.

 

[WizardDr]

The upside of equity release:
- secured debt means lower interest rates with a lower repayment;
- if its variable rate you can always pay it off early. This is in fact the key to managing 'mismatch';
- offers breathing space which is useful so long as you the 'ole discipline to go with it.

The downside:
- potentially paying over a longer period for something that maybe 'shorter' eg car lasting 5 years but paying it back over 10 ..does not make great sense i.e. the 'mismatch'.