Aside from the personal tax benefits for interest on tuition costs, home equity loans can offer significant tax benefits to small business if they are used for business purposes. Even though the loan may be borrowed in your personal name, if the whole amount is re-loaned by you to the business and the business uses those funds for business purposes, then the net interest paid on the home equity loans can be tax deductible. We recommend that you discuss this with your tax advisor to take account of individual circumstances.

What Is a Reverse Mortgage or Equity Release Plan
These products are mainly designed to suit retired or elderly borrowers who want to have a high equity in their homes and want to raise cash but who don’t want to have to sell up and move to release the equity in their home. There are three main types of equity release products, where homeowners can raise funds by trading equity in their homes.

Reverse Mortgages where the home owner borrows funds against the equity in their home and where the principal and interest is not repaid until the home is sold. (Usually when the borrower dies or otherwise vacates the home, or sells it). There are no interim loan repayments and they are structured with a borrowing limit that ensures the accumulating principal and interest does not outgrow the home’s value during the lifetime of the youngest homeowner/borrower. Upon completion or death of the borrower, the executors usually have an additional 12 months to refinance the loan or sell the home.

 Home reversion schemes where the consumer sells all or part of the home to a reversion company. The house is usually sold for an agreed figure, usually between 35% and 60% of its current market value, however the borrower can remain in the property until they die or voluntarily vacate the home. There are both; sale and lease, and sale and mortgage versions of this product.

 The third Equity release plan is Shared Appreciation Mortgages (SAMs) where the borrower gives up the right to the capital gain on a portion of the property in return for paying low or no interest on that portion of their borrowings.

Calculating the Equity in your Home
The usable equity a borrower has in their home is calculated by fist establishing the market value or security value of the home, usually by the lenders assessor. Then from that figure you deduct the outstanding balance (or the limit if they are redrawable facilities) of existing mortgages. This would equate to what funds you would have left over if you sold your home and repaid all loans against it.

Why Have a Reverse Mortgage or Equity Release Plan?
Reverse mortgages (also known as equity release plans), are an increasingly popular and practical way for aged homeowners (over 60) to refinance or finance their wants and desires in their senior years whilst they are still able to enjoy it.

A reverse mortgage is a loan facility. It’s designed to allow the borrower to take a cash loan against the agreed value of the home however it requires no repayments during the normal term of the loan. A regular bank loan is based upon your ability to repay the loan whereas  a reverse mortgage is based on the home equity and the agreed value of the home which secures and ultimately repays the amount of the loan.

Interest on these loans is accrued monthly and accumulated onto the debt principal throughout the term of the loan. he entire debt is then repaid when the borrower either sells or dies, or permanently moves out of the home such as to an ongoing nursing home or aged care facility.

How much home equity can be released?
The minimum amount you can borrow on a reverse mortgage is usually $10,000. The maximum is a function of much equity the borrower has and how long the principal will accumulate. So the age of the borrower is a factor. The percentage of the value of the home varies widely based on these factors and location etc but it is usually a low percentage of the home’s value.

Refinance Your Home Equity Loan
A restructured home equity loan might give you the flexibility you need to match your income to your outgoings particularly with a redraw facility. Or maybe you just want a lower overall regular montly payment with a fixed term loan. Read more...