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How To Get Rid Of Negative Equity In A Car – This time, we’re looking at ‘negative equity’, how it can feel trapped in your home, how it can happen and what you can do about it.
Simply put, negative equity is when your equity is less than the remaining value of your mortgage
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Fortunately, yes, there is a way ‘Equity’ is another term for the value of your property To calculate your equity, you need to know two things:
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By subtracting the mortgage amount from the current market value of your property, you will have an answer and that will be the amount of equity you have in your property.
A common reason people find themselves in negative equity is a decline in home values Sometimes when home values decrease, the number of properties in negative equity will usually increase This can be a problem for homeowners during a recession because home values can drop dramatically
Another common reason for negative equity can be an interest-only mortgage With this type of mortgage, you pay interest on the amount you borrow instead of just paying off the mortgage amount each month. Your total amount is paid off at the end of the loan Homeowners not paying off their mortgage means they’re not building equity in a property, so falling property values put them at greater risk of being in negative equity.
A third way people find themselves in negative equity is when they use equity release and the interest charged on the equity release exceeds the value of the property, meaning the homeowner owes more than the property is worth.
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A real-life example of this was reported by Icemoney in September 2021 when they explained that widow Jane Horton was awarded a settlement figure of £996,572 after taking out a £384,000 equity release loan with her husband. The figure includes interest payments of more than £500,000 and early exit penalty fees of £96,000.
It is a condition that is more likely to affect the elderly population Research from Canada Life – an insurance and financial services company – shows that a third of UK homeowners over the age of 55 are planning to leave the equity in their home to boost retirement income with pension savings. The research, which questioned 506 UK adults with a defined contribution pension (and not yet drawing an income from it), revealed that those with a pension of more than £55,000 were more likely to withdraw from equity (42%) than those with a pension of more than £55,000. At prices below £200,000 (27%).
If you have used equity release, check the details to see if you are able to transfer the loan to a new property. You’ll also want to make sure there’s a ‘no negative equity’ guarantee. Without it, your beneficiaries may find that you owe money even after the property is sold
The first thing to do is to stay calm and think about the future If the amount you have in negative equity is a relatively small amount, it may be that the value of the home increases and you will be in positive equity. If you’re not thinking about moving home right away, this would be a long-term option
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Alternatively, if you can afford it, try paying more on your mortgage This will help increase the amount of equity you have in your home, but be aware that paying for more may result.
Whatever your situation, seeking professional financial advice will help you gain clarity on your specific situation and develop a plan to improve your situation.
Here are four things to think about if you’re going to buy a property and want to get into negative equity.
As we have covered in other articles (for example, see ‘Can I sell my house to a family member for £1?’ – Article 00020), once the sale of the house is complete, the lender must be repaid in full. Any lender who has a loan secured on your home will have their payment recorded to prevent you from being sold without paying off their loan first. So if you need to sell your home and owe more on your mortgage than the current value of your home, you’ll need to make up the difference between how much you owe on your mortgage and the amount from the sale. If you don’t have savings or other funds available, it may be difficult for you to pay and you may be unable to sell your property.
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You may be able to include a guarantor on a new mortgage, but the guarantor must secure the loan on their home, like yours. Getting an unsecured loan from your bank or forming a company can be a way to eliminate negative equity, but it will be an expensive way to borrow. Alternatively, a bridge loan or second charge mortgage may be a short-term option, but it will be secured against your home so there is a greater risk of losing your home if you are unable to repay.
I’m in negative equity, but my mortgage is coming to an end soon – what can I do?
If you are unfortunate enough to be in negative equity, it may be difficult for you to arrange a new mortgage when your current contract expires. If this is your situation, talk to your current provider and ask if you are able to renegotiate a new contract with them. In the event they are unable to offer you a new deal, you are likely to be transferred to their standard variable rate when your current deal expires. If the new standard variable rate is lower you may want to stick with it However, it is important to remember that this is a variable rate and thus, the contract may change
Your best bet is to talk to your mortgage lender as soon as possible; Don’t bury your head in the sand and expect the problem to go away Contacting them as soon as possible may mean they have a solution that will help make your mortgage more affordable You may want to seek advice from Citizens Advice
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You should be aware that mortgage interest does not count toward your negative equity Negative equity only relates to the value of your home If you are able to pay the interest on your mortgage, it will mean that you are able to maintain your credit rating and in the future the value of your home increases and you want to move.
We hope this article has helped you understand more about negative equity and its implications if you are trying to sell your home. Before taking any action, you may want to contact an independent financial advisor to seek their expert advice.
If you have any questions about selling your property for cash, we’d be happy to chat with you Please call or send an email
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