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Representative example: If you borrow £35,000 over 14 years at a rate of 8.95% variable, you will pay 168 instalments of £418.88 per month and a total amount payable of £70,371.84. This includes the net loan, interest of £30,326.84, a broker fee of £3,550 and a lender fee of £995. The overall cost for comparison is 11.8% APRC variable.

Typical 11.8% APRC variable. Maximum APRC 24.9%

Minimum loan term of 1 year. Maximum loan term of 30 years.

Home equity loans explained

As a result of the dramatic increases in house prices in the last few decades, you may be sitting on a potential goldmine as your property could be worth much more than you paid for it and significantly more than any debts you have secured against it. If you own your property outright or have a mortgage secured against it, you could borrow money against the value of your property. Here we explain the different ways you could use the equity in your home and borrow money.

How to calculate the equity in your property?

The difference between the value of your house or flat and the amount you owe on it on a mortgage or other secured loan is called the equity. For example, if you have a home worth £250,000 and a mortgage of £100,000 you have equity of £150,000.

Secured loans

A secured loan is a type of financial product that uses the value of a piece of property as "security" against the loan. In this case, you can use/release the equity in your home in the form of a loan.

If you own your own home with a mortgage, you may be able to release additional funds using your property as security. You may see secured loans also referred to as 'second charge loans' - this is because the provider of the secured loan is second in line to get their money back if the borrower is unable to repay the debt. Mortgages are usually the first charge on a property, meaning a mortgage lender is first in line to receive their money.

Due to the above, secured loan lenders take on more risk that mortgage lenders, meaning interest rates on secured loans tend to be higher when compared with first charge mortgages. Secured loans also tend to have variable interest rates that could go up or down over time and not just when the Bank of England base rate changes. It's worht bearing in mind, however, that although mortgages with variable interest rates do generally move in line with the base rate, this is not guaranteed.

Remortgaging

Remortgaging means increasing the size of your existing mortgage to release some cash that can be used, for example, to pay off debts, make improvements to your home, use as a deposit for a buy-to-let property, or perhaps to help family members with a deposit for their first house or flat. To be able to remortgage you need to have some equity in your property, which could have been created by an increase in your home's value, or the repayment of the amount you borrowed or because you paid a large deposit when you took out the mortgage.

As long as you have sufficient equity in the property and have a high enough income after your outgoings and any other regular commitments, you might be able to remortgage with your existing lender or a new lender. You may also be able to get a better deal on your mortgage when you remortgage, for example, if you move from paying a more expensive standard variable rate to a cheaper fixed-rate deal or tracker mortgage.

Lifetime mortgages

A lifetime mortgage is a type of equity release and is essentially a mortgage that is only repaid when you die, or you need to move into care. Unlike a standard residential mortgage, with a lifetime mortgage, no interest is charged on the loan, and no repayments are made. Because the debt is not reduced and interest is charged on the amount borrowed, the debt will grow quite quickly, even with the fixed interest rate that stays the same for the length of the loan. Importantly, you will never owe more than the value of your home. However, there could be nothing left over to leave to your family or pay for care, if the value of your property when you die or move into care, is used in full to pay off the amount owing.

You usually need to be over at least 55 to take out a lifetime mortgage and the older you are, the more of the value of the property you can borrow. The minimum you can borrow is £10,000 to around £50,000, and your property needs to be worth more than £70,000 to £100,000.

What are retirement interest-only mortgages?

Retirement interest-only (RIO) mortgages have been introduced in recent years to help older people who may struggle to get standard mortgages because of their age and reduced income. RIO mortgages work in a similar way to lifetime mortgages, but with a RIO mortgage, the borrower makes a repayment each month that covers the interest charged on the loan, in the same way as an interest-only mortgage. Not repaying any of the loan each month reduces the amount that has to be paid, making RIOs more affordable. Especially as borrowers only have to show they can afford to repay the interest, not the amount they borrowed as well. The RIO mortgage is repaid when the property is sold, the borrower dies or has to move into care.

Other ways to use your property to borrow money

If you need to borrow money to buy a new property before you have sold your current property or buy a property at auction, then a bridging loan could be useful. Bridging loans are secured loans using your property as security and can either be for a fixed period of a few months or longer, or an open-ended loan without an end date. Bridging loans can be expensive with a setup fee of around 2% and interest rates of between 0.5% and 1.5% per month. You can borrow large amounts of money with a bridging loan as long as your property's value is high enough. However, a bridging loan could be costly if you need to keep it for many months.

With a secured loan, you can borrow larger amounts over longer periods than you can with an unsecured personal loan. You must also already have a mortgage on the property you want to secure the secured loan against. Interest rates on secured loans tend to be more expensive than residential mortgages. See our Guide to Secured Loans for a more detailed explanation of how they work.