Everything you need to know about borrowing money against your home

Person calculating figures when borrowing money

Do your homework as to whether borrowing against your home is the best option for you - Credit: Getty Images/iStockphoto

Borrowing against your home can be a very popular option if you need to raise funds or for a large purchase.  

Whether it is for a wedding, school fees, home improvements or starting a business, using your home as security can help you access large sums and also pay very competitive rates. 

But since your home is being used as collateral, this does come with risks so we speak with David Beard, the founder and CEO of price comparison Lending Expert to find out what you need to know. 

Key points 

Ways to borrow against your home include second mortgages, remortgages and equity release. 

Your house could be at risk of repossession if you cannot pay back your loan. 

You should check whether you need to borrow against your home, or if you could get the funds you need through other forms of finance such as borrowing from family, personal loans and credit cards.  

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Using your home as security has its risks, but it can present very low rates of interest. 


Should I consider borrowing against my home? 

“Borrowing money against your home is very common,” explains Beard. 

“It is not a taboo subject or a last resort, it is something that people do every day and last year Britons borrowed more than £100 million worth of second mortgages. 

“When you borrow against your home it is known as a second mortgage, because you already have your first mortgage in place and this is just getting another loan on top that is secured against your property. 

“If you have a valuable home and have been making mortgage payments, this could give you the opportunity to borrow a large sum such as £25,000 or £100,000 and repay over one, five or 20 years if you wanted to. 

“There are a number of reasons to borrow against your home. Some of the most famous entrepreneurs used this to fund their business ventures. Some homeowners want to raise money to make home improvements such as a new kitchen or loft conversion - and in doing so, they increase the value of their property. 

“Other common reasons include borrowing money to consolidate their debts. You could save money if you pay off existing loans and cards, or consolidate all your outgoings into one loan.” 

 
How can I borrow money against my home? 

Secured loan 

A secured loan is sometimes referred to as a homeowner loan. This is because someone that owns their property can use it as collateral for a fixed-term loan. With secured loans, the amount that you are eligible to borrow will depend on the value of your property and the equity you have.  

Second-charge loan 

A second-charge loan is where you get a second mortgage on top of your existing mortgage. This second-charge mortgage is taken out of your bank account after your initial mortgage – the first charge. This lets you borrow large amounts of money on top of your original mortgage. 

Remortgage 

If you remortgage, you can get new mortgage terms and potentially release a large sum of cash at the same time. You could also get a lower rate than your existing mortgage and the repayments are just included in your existing monthly mortgage fees. 

Equity release 

Equity release is where you release a percentage of the value of your property. This is an option for people over 55, and you can release between 20% and 60% of the value of your home. This gives people an initial tax-free cash sum and a large amount too. 

What are terms of borrowing against your home? 

When borrowing against your home in the form of a secured or second mortgage, you can borrow sums ranging from £5,000 to £500,000 (or higher) depending on the value of your property and the equity that you have in it. 

Loan terms range from one to 30 years and you repay in equal monthly instalments, with low rates from just 3.34% APRC.  

Since you are using valuable security, the rates offered are typically low and affordable - and comparably less than personal loans or credit cards. 

You will have the option to repay early, but depending on the terms of your agreement, this may be subject to an early penalty charge. 

 
Think carefully before securing other debts against your home. 

Your home may be repossessed if you do not keep up repayments on a loan or any other debt secured on it. 

 
To check your eligibility for a secured loan and how much you can borrow, you can get a free quote with Lending Expert or to speak with an advisor, call 0161 820 8099.  

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