Quick House Sale, Rent Back To Avoid Mortgage Default

'Mortgage default' - the two most dreaded words in the English language.

As homeowners we are required to provide financial consistency month in month out in order to meet our mortgage obligations, and in order to avoid foreclosure and prevent losing our family home. This can often prove problematic for those looking to start a business, or those that suddenly lose their job through redundancy. For these people, the fact that income stops doesn't do anything about the monthly mortgage bill, and a couple of months in arrears is enough to lose favour with any bank manager.

Of course there is payment protection insurance that can help cover for such circumstances in the short term, but what if you don't already have this kind of cover? Furthermore, if you're looking to obtain insurance as a self employed entrepreneur, that's going to prove expensive as a result of the higher individual risk you pose. One of the better alternatives to that is what is known as the rent back model. The rent back model is basically where the homeowner sells his house but continues to reside there as tenant under the new owner. With house prices skyrocketing over the last decade, this has proven to be an increasingly successful strategy for many concerned about losing their home, or meeting their monthly mortgage repayments.

Consider the scenario of an employee looking to give up his well paid, secure job to start a business. It's a big step, and for the most part people will be put off by the risk of not making enough income on their own to pay off the mortgage every month. Of course the rent back model can provide a good solution here, particularly in relation to unlocking equity for other purposes. By selling and renting back their home, the prospective entrepreneur can unleash a lump sum of capital (tax free) to invest in their business, as well as minimising all risk of losing their home. That way they can be guaranteed the minimum disruption, as well as minimal risk through their business start up. Naturally the longer you have paid your mortgage, the more capital you can enjoy, but that's not to say fairly new homeowners couldn't benefit from the same arrangement.

Selling your home on a rent back can also be a cost effective way of clearing all your existing debts, without affecting your credit rating further by seeking a consolidation loan. By releasing paid up equity in your home you can pay off all your creditors in one move, before aiming to get yourself back on the property ladder. All the while, you can benefit from staying in your own home under a tenancy agreement, to prevent disruption to your family life whilst you sort out your finances and look to find another property. Either way, the rent back model can prove to be an attractive option for homeowners looking to release value of their property with minimal hassle and expense.

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