Definition: An equity mortgage, or equity lending, refers to a mortgage loan primarily approved based on the equity or value of the property rather than the borrower’s income or credit history. This type of lending is common for individuals with unique financial circumstances, such as self-employed borrowers or those with a limited credit history, who may not qualify for traditional financing.

Key points:

• Focus on property value: Equity mortgages rely on the property’s current market value and equity, meaning the difference between the property’s value and any outstanding mortgage balance.
• Higher interest rates: Because these loans present a higher risk to lenders, equity mortgages typically come with higher interest rates than conventional loans.
• Flexible lending criteria: Equity lending may be an option for those with lower credit scores or irregular income, provided they have significant equity in their property.
• Shorter terms and conditions: Equity mortgages often have shorter loan terms and stricter conditions to mitigate risk for the lender.

Tip: If considering an equity mortgage, it’s crucial to weigh the costs and benefits. Consulting a mortgage professional can help clarify whether equity lending is the best fit based on your financial goals and circumstances.

Last modified: November 5, 2024