IVA remortgage for equity release: how does it work?

If you're a homeowner and you enter into an IVA (Individual Voluntary Arrangement), you may be expected to release most of the equity in your home to help repay your lenders.

This normally involves remortgaging your home. However, following the recent financial crisis, a lot of people now find it much more difficult to remortgage than they would have in the past - especially if they're in the middle of an IVA.

A typical IVA lasts five years, and records remain on your credit history for six years from the day it starts - so that's six years in which getting a remortgage is likely to be difficult.

What happens if I can't remortgage?

If you can't remortgage to release equity in your home - or if there is no equity available - your IP may agree with your lenders to add an extra 12 months onto your IVA term, to ensure you can repay more of your debt (so if you started out on a typical 60-month IVA, this would be increased to 72 months).

But what about the mortgage itself? You have a few options:

Move onto your mortgage lender's SVR (standard variable rate)

Most mortgage deals are time-limited. You'll normally pay a discounted rate for an agreed period (e.g. two years), after which your mortgage will automatically switch to the lender's SVR (standard variable rate) - unless you can move to a new discounted deal.

In most cases, this shouldn't cause any problems. The SVR isn't usually all that much higher than the discounted rates on offer at any given time - and even if there is an increase in your outgoings, you may be able to adjust your IVA payments accordingly (as long as your lenders agree).

A potential downside is that the rate could vary over time - and if it increases by too much, you may find that your IVA is no longer affordable.

Find a new deal

An IVA doesn't necessarily mean you won't be able to find a new mortgage deal. It may be more difficult than if your credit rating was strong, but if you have a reasonable deposit and it's clear that your mortgage payments are affordable alongside your IVA payments, you may still be able to find something.

Image © iStockPhotos / Tommaso Colia

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Tags: IVA, remortgage, IVA remortgage, equity release, IVA equity release, how to get a remortgage, getting a remortgage

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