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How does a home equity loan work?

A home equity loan is a type of loan where you borrow against the equity in your property.

For example, you may have a house worth £150,000 and an outstanding mortgage of £75,000. In this case, you have £75,000 of equity in your property. A home equity loan allows you to borrow some or all of the equity in your property in return for the lender taking your home as security for the loan.

Because the lender is taking a legal ‘charge’ over your home as security for the loan, home equity loans are often available at lower interest rates than other types of credit such as unsecured loans, overdrafts or credit cards.

You can use a home equity loan for almost any purpose. You can use it to consolidate other debts you have, to undertake improvements on your property or to pay for a one off item such as a new car or a dream holiday. In addition you can use a secured loan to pay for a wedding or to help your children through university or college.

Of course, as the lender is taking your home as security for the homeowner loan your property will be at risk if you fail to keep up the repayments on your loan.

You can typically borrow between £3,000 and over £100,000 on a home equity loan depending on the amount of equity in your home and your income. You are likely to have to demonstrate that the loan is affordable to you and you will have to provide identification.

The interest rate that you will be charged on your home equity loan will generally be determined by two factors. Firstly, it will depend on the amount of money you want to borrow in relation to your home’s value (the ‘loan to value’). Generally speaking, the higher the proportion of your home’s value you want to borrow, the higher the interest rate will be. Secondly, your credit rating is likely to affect the interest rate and you may pay a higher rate if you have a less than perfect credit history (for example if you have County Court Judgments (CCJs) or defaults on your credit file).

The application process for a home equity loan is straightforward and you can generally expect to receive the money within 4-6 weeks.

To access the money tied in your home equity and get a great loan rate, fill our loan form on the right now.