Can you please explain how taking equity from your house works?

For example: If I had a mortgage for £100,000 and my house was worth £150,00, would i be table to take £20,000 equity out of my house?

If so how does it work, would i then have to pay for that £20,000 on top of my mortgage payments?

I have not got a clue how it works, any advice would be great


4 Answers

  • 10 years ago
    Favorite Answer

    These are Home Equity Loans. With these, you borrow against the equity in your home. They will usually only offer up to 75-80% of equity. That means in your example, if a lender offered 80%, the math would look like this

    £150,000 value

    80% of £150,000 = £120,000

    Amount owed £100,000

    £120,000-£100,000 = £20,000

    In this scenario, you may qualify to take out £20,000. If you are considering doing this, contact banks and ask them about equity loans.

    It would be a separate loan that you would make payments on. You still owe your primary mortgage.

    Home Equity Loans are usually for shorter periods than mortgages. I believe that both of mine are for 10 years.

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  • SimonC
    Lv 7
    10 years ago

    Equity is the amount your house is worth over the amount of any loans secured on the property. So taking equity out of the house simply means getting a new mortgage that is secured on your house.

    This could be a second mortgage, leaving the existing one as it is. Or it could be that you remortgage for more than your current mortgage, paying the old one off and leaving you with a cash balance.

    Either way, the normal requirements of getting a mortgage will apply. EG you will not be able to borrow more than a certain fraction of the value of the house - probably 75%. So in your example you would probably only be able to get about £12,500. You will also need to prove that you have enough income to meet the repayments, and you will have to pay application, legal and valuation fees.

    If you take out a second mortgage you will have a second lot of repayments on top of your current repayments. If you remortgage there will only be one payment, but as you will have a bigger loan the payments are likely to be higher. But not necessarily if you are able to get a much better deal than you are currently on.

    Before you do this get some independent financial advice. Although the housing market has picked up recently, it is quite possible that prices will fall again. If you borrow more you may be at risk of ending up in negative equity (means the house is worth less than the amount owed on it). This would prevent you from moving. But even if you are not in negative equity, you may not have enough equity to remortgage, so you may be stuck with a very high rate. This is even more important because interest rates will be going up soon, which will make a big difference to how much you have to repay.

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  • 10 years ago

    Your walking into a financial minefield here.

    Please get advice from a qualified person.

    Equity release is a "last resort" scenario.

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  • Anonymous
    10 years ago

    Yes and yes

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