Borrowing against your home

If you have equity in your home - which is how much the property is worth minus the amount outstanding on your mortgage loan - you may be able to borrow money against it. For example, if you have £150,000 left to pay on your mortgage, and your home is worth £200,000, you have £50,000 in equity (assuming there are no changes in the property’s value)

There are three main ways you can borrow against your home:

1. Secured loan - is a type of loan where your property, often your home, is used as security.
2. Further advance mortgage - where you borrow more money from your existing mortgage lender. Your home is used as collateral.
3. Remortgage - where you take out a new mortgage to free up funds or to secure a better deal. Unless you’re coming to the end of an existing deal, you’ll need to pay an early repayment charge to take out a new mortgage.

With any of these options your home is at risk of being repossessed if you can’t keep up with the repayments.

You should consider your options carefully as you may be better off with a personal loan or a 0% purchase credit card depending on your circumstances and the purpose of the borrowing.

The type of borrowing you choose depends on your financial background and what you want to do with the funds.

People tend to opt for a secured loan against their home if they need a larger amount - sometimes up to £100,000 or higher.

While others may choose a further advance mortgage or remortgage to pay for home improvements or a deposit for another property.

There are various benefits of borrowing against your house, such as:

• Borrowing larger amounts - depending on the value of your property
• Paying lower interest rates - they are usually lower than a personal loan as you’re using your property as security, meaning there is less risk to the lender
• Longer payment term - the monthly payments will be spread over a long period, which will usually mean cheaper monthly repayments than a personal loan
• A better option for those with bad, or limited, credit history - lenders tend to be more sympathetic as the loan is secured against your property

You should bear in mind the negatives associated with borrowing against property:

• Your home is at risk - as you are using your home as security to borrow, the lender can repossess your property if you’re unable to keep up with the repayments
• While the interest rate may be lower, you’re could end up paying a lot of interest overall as you’ll pay it over a long period of time
• You could be liable for extra fees - such as (but not limited to) administration costs, legal, valuation or broker fees and others, depending on the lender

With a further advance mortgage you are taking out a second mortgage on your property. The interest rates are usually higher than your main mortgage.

How much you can borrow depends on your credit record, your income, how much equity you have in your property and the method you intend to use to release funds:

• Secured loan - you usually have the opportunity to borrow larger amounts (over £25,000)
• Remortgage or further advance mortgage- try our mortgage calculators to work out how much you could borrow

Borrowing when you’ve got a poor credit history can be difficult, but isn’t impossible. Creditors are more likely to lend to those with bad credit if they have a high value asset, like a house, to use as security. This reassures the lender they will get their money back, however there is the chance you could lose your home if you fail to make the repayments.

For a further advance mortgage, remortgage or secured loan against your home, you’ll have to already be a homeowner with a first mortgage. Lenders will also need information on your:

• Income and spending
• Credit history
• Equity available in your property
• Property’s current market value

Yes, property owners commonly borrow money against a house to invest in another. This is the case if it’s a buy to let or a new home for you to live in. When you release the funds, you can use it as a deposit for the property, however you’ll have to prove you can cover the higher mortgage repayments on your first home.

Taking out a second mortgage against your property or remortgaging could be right for you if:

• You’re finding it difficult to get credit using unsecured borrowing, like personal loans or credit cards
• Your credit score has gone down
• You want to renovate your home or invest in a new property

However, it might not be right for you if:

• You’re already struggling to pay your current mortgage as you’ll have to manage extra, or more expensive, monthly repayments.
• You’re looking to clear existing debts - borrowing this way usually means you’ll pay more interest over a longer term, which could cost you more and may increase the risk of you losing your property.

If you’ve decided borrowing against your home could be right for you, start by comparing deals for

• Secured loan
• Remortgages

Or speak to your existing lender about a further advance mortgage. It’s always a good idea to speak to a mortgage advisor before making any decisions.

Remember to consider not just the interest rates, but how much it will cost you over the full term of the borrowing agreement.