Borrowing Against Your Home

Bricks and mortar have traditionally been viewed as a sound investment, particularly over the long term. Even short-term gains can be staggering: for example, over the three years to the end of 1988, house prices in the UK rose by an average of 75 per cent, though increases were considerably lower in Scotland, Northern Ireland and some of the northern areas of England. As a result of rising house prices, many people now have a large pool of untapped capital - 'equity' - over and above the amount of their outstanding mortgage.

You may be happy to leave your capital invested in your home, but it could be a useful source of funds for, say, home improvements, income in retirement, a new car, school fees, or virtually anything you care to think of. There are a number of ways in which you can tap into the equity in your home.

WARNING Schemes that let you borrow against the value of the equity in your home can be very useful, but don't over-extend yourself and always read the small print before you commit yourself. In particular, bear in mind that house prices can fall as well as rise, so you could be left owing more than your home is worth. And with many schemes you're committed to making regular repayments - if you can't keep these up, the lender can force you to sell your home.

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Other Types of Mortgages

Fixed interest mortgage The interest rate is fixed for a specified period - say, one, three or five years - when you first take out the loan. After that, the rate becomes variable. There's a penalty charge if you want to switch your mortgage within the fixed interest period. These mortgages are a gamble: if interest rates rise during the fixed interest period, you'll be paying less than with an 'ordinary' mortgage. But if interest rates fall, you'll be stuck paying more.

LIBOR-linked mortgages The interest rate is set at a fixed percentage (one per cent, say) above the three-month London... see: Other Types of Mortgages

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