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Home equity release: what is it and how does it work

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Home Equity Release is a loan that is backed by property you already own. It can provide the required funds to make a profitable investment like commercial property or securities, but also if you need emergency capital for an unexpected situation.

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  • No need to sell or rent out the property you already own.
  • It comes with beneficial lending terms.
  • Banks are more likely to grant the loan for exceptional property investments that wouldn't usually obtain financing (e.g., a retirement home).

The lending process is broken down into three stages. The bank provides a loan against the property and the money is used to finance another purchase like income-generating commercial property. The profits then go towards expenses like maintenance costs and loan repayments — the rest is spent how the investor chooses.

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Furthermore, home equity releases can be used for a range of other necessary expenses such as medical care, tuition or servicing other loans — it all depends on the bank’s lending policy.

Depending on the bank's lending policy, the use of provided funds can be restricted in a number of ways. However, it's not always the case: many banks provide this kind of financing as readily as general loans, meaning that the acquired funds can be used at the lendee's sole discretion.

The assessment procedure when using this scheme is similar to that of a conventional mortgage with one main difference: the client already owns the property used as collateral. However, not every bank offering mortgages is ready to finance a home equity release and lendees are often already clients of the bank that approves them. These are the organisations to contact first of all.

Kirill Schmidt Head of Financial Services

If you do plan on investing in commercial property, banks will be more likely to grant your request if your property is worth €500,000 or more. On the plus side, European interest rates are extremely low at the moment (about 2% p.a. for up to 20 years), especially in Austria and Germany, making it an attractive option.

Home equity release lending terms

Rates Fixed: 2–3% per annum
Floating: Euribor + 1.7–2.0%.
Loan term 5–20 years
Loan amount 50–60% of the assessed property value
Application processing time 6–10 weeks

Tranio can help you get a loan for your property purchase. Our consultants are here to assist you every step of the way from buying property to getting financing and even a residence permit.

Yulia Kozhevnikova, Tranio

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