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Have you ever thought about raising money from the value of your
property? Many owners are sitting on properties worth far more than
they paid for them. Some have seen a significant appreciation in value
in just a few years that for many, their property is their single most
valuable asset.Equity release schemes are relatively new in Nigeria but
have been in practise for over 30 years in Western markets.

In
these markets, middle aged and retired home owners who may be “asset
rich, yet cash poor” and own their homes outright are able to release
some of the equity in their home in return for income or a combination
of cash and a regular income for the rest of their lives, whilst still
retaining the use of their home.If you own a property that has
appreciated in value since you purchased it and is unencumbered, it is
possible to unlock some of the extra value your property now has.

It
works like this: The bank takes a charge on your property and can lend
you up to 80 per cent of the capital or value of the property; the
funds can be applied to the purchase or development of another
property, or invested in other investment opportunities.Five years ago,
Mr. Taiwo bought a property for N₦15 million in Lekki Peninsular Phase
I. Today, the property is worth over N60 million, and he earns rental
income of N3.5 million per annum from it. Mr. Taiwo is thinking of
borrowing up to N40 million using the property as collateral to take
advantage of new real estate opportunities that has come up. He expects
that this investment over the next five years should yield a higher
return than the 18 per cent per annum he is paying on his loan.

The
risks

Equity release schemes as does all borrowing, come with a degree
of risk and you should fully understand the product terms before
committing.

If the market softens and property prices are
falling and you have borrowed too much based on the valuation of the
property when prices were at their highest, the value of the property
could be less than the amount you initially borrowed.It is a good idea
to borrow only what you need or as much as you intend to spend. An
equity release scheme is best utilised to take advantage of interesting
investment opportunities and not out of a desperate need to free up
cash.

If there are severe cash constrains with little borrowing
capacity, then it may be a better option to sell the property, buy a
cheaper property and release cash in that way. Remember that the lender
has a charge on your property and you must be able to service your
loan; you could lose it if you default on your payments.

You
must be able to service the loan or run the risk of losing your home
Seek professional advice Your financial advisor will look at your
overall financial situation to ascertain that an equity release scheme
is indeed the best option for you.

Product features including
the amount of money you can access, and documentation requirements are
similar to those required for mortgage applications; these vary from
lender to lender and are influenced as much by the value of your
property as by your age.

Interest rates

Naturally, property owners will
look to release equity when interest rates are low, and house prices
are stable or rising.Look critically at the interest rates;
differences of 1 per cent to 2 per cent may not seem like a lot but
they can make a big difference over a long period. Interest can quickly
mount up so be conscious of freeing up equity only where the return on
the investment more than compensates you for what can be significant
interest costs.

Estate planning Any home equity loan will have an
impact on any assets you were expecting to bequeath to your loved ones
and will directly reduce what they will inherit unless the loan is
fully paid off before you die. Review your will, and if appropriate,
consider discussing the scheme with close family members who may be
living in a particular property.

Remember that if the loan is
not fully paid for, the house will be sold and if it has been a family
home, family members may suffer much distress if they are forced to
move suddenly. Ideally this scheme should be applied to investment
properties and not the family home.It is always worth considering your
other assets to determine whether there are alternative yet affordable
ways of raising the money you need.

Have a clear idea of your
key objectives, your personal priorities, risk appetite, and views on
the direction of property market as this should influence your decision
as to whether or not this product is appropriate for you.