1. How to Incorporate an Equity Clause in Your IVA
2. Examples of Equity Clause Terms

The equity clause definition refers to a provision within your Individual Voluntary Agreement (IVA) proposal that may require you to release some of your equity to your lenders.

Equity is the current market value of your property minus the outstanding amount of mortgage and other loans associated with it. If you have equity in your property, the value is considered an asset by your lenders. Your IVA proposal may include an equity clause, which requires you to release some of your equity and pay it into your IVA to benefit your lenders.

How to Incorporate an Equity Clause in Your IVA

Your lender will guide you through the process of transferring equity according to your IVA. The process usually includes the following steps:

  1. Collect information. Your IVA provider will typically ask you to gather information, including the official valuation of your property (as provided by a local real estate agent), a redemption statement for your mortgage (as provided by your mortgage lender, showing the current mortgage amount and remaining mortgage term), statements for any secured debts (as provided by your lender, including any additional mortgages, charging orders, or secured loans), and an endowment statement (as provided by your endowment provider).
  2. Determine your equity. Using the aforementioned information, your IVA provider will calculate the amount of equity in your property (if any).
  3. Take appropriate actions pertaining to the equity clause. If you need to do anything to deal with the equity clause and satisfy your lenders, your IVA provider will let you know. You will never be required to release all of your shares of the equity in your property since the amount is calculated based on 85 percent of your interest in the property. Required actions will depend on how much your equity is worth. If you have little or no equity, your lenders will typically recognize that it is unrealistic to expect you to pay an additional amount into your IVA. If you have a significant amount of equity, you will probably be asked to attempt to release some of this into your IVA.

Examples of Equity Clause Terms

According to the specific terms of the equity clause and any modifications proposed by lenders, there could be additional guidelines related to the amount of equity you might be asked to release, and any additional borrowing you might take out to try to release it. Guidelines may include the following terms:

  • The amount requested in the clause may never be more than the total outstanding debt that you owe to lenders in your IVA plus any additional costs and fees incurred by managing your IVA. However, this excludes statutory interest.
  • Any new monthly payment amount may not be more than 50 percent of your regular IVA monthly amount.
  • Any new refinancing of your mortgage or secured loan may be capped at 85 percent of the loan value of your portion of the property.
  • Any charges or fees you must pay to establish the new borrowing may be financed out of the amount you release.
  • If you have a joint mortgage with another individual, your lender may only request you release part of your share of the equity.

According to your new lenders' requirements and guidelines, you might discover that you can release some of the equity from your property, but not the complete amount requested. If you get declined for refinancing your mortgage or a secured loan, you might not be able to release any equity at all. If this happens, your lender may accept the lesser amount, or they may ask you to take other actions to release the equity requested.

In these situations, your lender might require any of numerous different courses of action to remedy the situation. They may ask you to get a partner, family member, or friend to pay a lump sum into your IVA. Typically, this must equate to 85 percent of your share of the property's equity. Another option would be extending your IVA by up to one year, which then requires you to make 12 additional monthly payments before your IVA is completed. In a regular IVA, this means a six-year arrangement, unless your IVA has been extended for other reasons already, such as payment breaks or missed payment.

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