Really concerned about equity release clause

[Debt Monkey]

Hi there,

My equity release clause states:

The debtor's property is to be valued in year 4 and the debtor's share of any equity in the property, based upon a maximum lending of the open maket value, with vacant possession, be introduced into the arangement by way of third party monies, remortgage or sale.

What exactly does this mean? My property is worth about £150,000 and my mortgage is about £129,000, still got a year to go until 4th year. Am I expected to release the full £21,000 of equity assuming no changes in value/mortgage balance?

Any input greatly appreciated.

DM

[jpj]

You wont get a mortgage for more than 85% loan to value. So you shouldnt have to release anything!!
With falling house prices I really wouldnt worry about it!

[Debt Monkey]

Fair enough, another consideration of mine would be to try and end IVA early, lets say I have two years left paying £800 a month say £20,000 over two years, assuming I will not be able to release any equity in the 4th year could I sell my property now and use the £20,000 equity as a full and final settlement or will this not be possible given the clause. The reason I ask is my mum has an empty house I could rent, (at mums rates) for a year or two to save up a deposit to get back on the property ladder debt free this time!

[Debt Monkey]

Any thoughts Melanie?

[Adam Davies]

Hi
That is a perfectly acceptable solution,obviously do not sell until you have the proposal accepted by your creditors.
Talk it over with your IP
Regards

[MelanieGiles]

Yes - that would definately work for me if I were your Supervisor, but do be careful of clever IPs and creditors who might realise that you could afford to continue to pay higher contributions if you were to move in to cheaper rented accomodation.

Is your property jointly owned?

[Debt Monkey]

Yes the property is jointly owned but my wife also has an IVA, will this have any impact on the situation, presumably not. Our iva's were taken on at the same time and are reviewing in conjunction with each others etc when it comes to annual review.

So the fact that it states I have to release my share of the equity at market value with vacant possesion is nothing to be worried about?

[MelanieGiles]

The clause states at maximum borrowing - so if maximum borrowing is 85% loan to value and you already have a mortgage at that level, then there will be nothing to raise.

What is your house worth now and how much is your mortgage?

[Debt Monkey]

Worth about £150k maybe £155k but that is purely a guess. Mortgage is currently £129,800 and not going down alot with each repayment as it is over 35 years and only took it on 3 and a half years ago. A viable option then?

[MelanieGiles]

You will not get offered more than 85% loan to value, and possibly lower - so you are already at more than that at £129k. So why would you want to sell your house - is it better to have no house and not debt, and then build up money to get a deposit in the future, or to soldier on with the IVA and keep on the property ladder?

[Debt Monkey]

fair point!

[spenmotherhen]

Hi debt monkey we were in a similar predicament with regards of the 4th year clause.

We have to release 75% LTV and we are already at that point so would not benefit our creditors from a remortgage in the 4th year. As we now have equity in our property which was not available at the start of our IVA, we chose to sell and release this early.

Looking at our finances we have decided to sell our property ,settle our mortgage, IVA and fees with the equity and walk away with nothing apart from a debt free life, which is priceless at this point of our lives.

For us this was more important than keeping our IVA running for the next three years as we will be £700 better off a month which is a million when you have lived on such a tight budget.

We have four children and for me I want to give them the things they want during their childhood, football lessons, dancing lessons, birthday parties not the up to date mobile phones or trainers just life experiences.

At present we are unable to do this as our budget will not allow.

We to, our fortunate to have other accomodation at a low rent, I am totally living for today with our family and what happens in the future will be sorted when we get to it.

Weigh up all the pro's and con's it took us a couple of months to really decide what would be the best option but I am more than happy we have made the right decision.

Good luck in whatever you decide and if I can help you with any info as we are going through the process, please feel free to ask.

All the best

[Debt Monkey]

Thanks for that Spen. It is a definate consideration. I suppose the next step is to contact the IP and see what they have to say about it!

DM