Mortgage holders will often be able to extend their mortgage if they wish to, when the value of their home increases. This means that they will be able to get some extra money, which they might want to use to pay for home improvements, holidays or other things. It can be a great way to get some extra money and have more fun, but it can be a big gamble.
There is a risk that you may get into negative equity of you borrow too much against your home. This means that the value of your home is less than what you owe on it. It is something that mortgage lenders try to avoid, but they do make mistakes and this means you could get into this situation. It means that you will not be able to sell your home because you will not have enough money from the sale to pay off the mortgage and so you can get trapped in a property.
The first thing that many people do not think about when they borrow more money is how they will be able to make the repayments. It is almost hard to forget that as a result of borrowing more money, you will actually have to make bigger repayments. It may be possible to extend the loan term rather than make higher repayments, but this could also be unwise due to the cost of paying so many more interest payments. If you cannot afford a repayment, then you will have extra costs added on and if you continue to not pay then your property can be repossessed. It is easy to think that the lender will not do this because they do not like doing it and they will try to avoid it. However, it does happen and so if you continue to miss repayments, you could end up losing your home, which is not a good situation to be in.
Borrowing extra money will cost you money. Many people do not think much about the cost of a loan, they just think about the money that they are borrowing and what they will be spending it on. However, all loans cost money, you always have to repay a lot more than you have borrowed. This means that you need to consider what you are prepared to pay for the items that you are buying with the extra money and whether you really feel that it is worth it if you add on the costs of the loan. You can work out the cost if you calculate the amount of extra interest you would be paying over the term of the loan as well as any extra costs.
It is worth calculating how much it will cost to borrow extra money against your mortgage compared to other loans. The mortgage rate might be a lot lower, but if you still have a long term left on your mortgage, it could take you a long time to repay it. If you get a loan which is repaid in a shorter term then the total cost of borrowing could be a lot cheaper. Therefore do the comparison and see how much you will end up paying in costs and think about which you think will be better.
It is also worth thinking about what might happen if the base rate goes up. Unless you are on a fixed rate, then it is highly likely that your rate of interest will be put up. This could have a big impact on you if you are already struggling to make your repayments. Obviously the impact it has will depend on how much the rate goes up. At the moment rates are very low and likely to rise in small instalments but this could change in the future and it is always worth giving it some serious thought.
So by borrowing extra money against your mortgage you could be risking losing your home if you do not make the necessary repayments. You may also be paying more than with other types of loans because of the time it takes to repay the money. It is therefore a risk, but you may rather do it because it is easier and means that you do not have multiple places to repay.