Borrowing against your home - what you need to know
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Borrowing money against your home can be a viable option, whether you are looking to pay off some debts, helping your children buy a property of their own, starting a business or paying for a large wedding.
If you have been paying your mortgage for some time or have paid it off in full, you will have a lot of equity in your home - and that can be used to borrow large sums of money over a longer period and more affordable rates than perhaps a traditional unsecured or personal loan.
The biggest risk of course is that borrowing against your home will be a secured loan, and failing to keep up with repayments could lead to the repossession of your family home.
What are the ways to borrow money against your home?
Lending Expert explains that borrowing against your home generally falls under the following:
Secured loan - this is also known as a homeowner loan, so if you own your property or are paying the mortgage, you can use this property as collateral over a fixed-term. The amount you can borrow will depend on the value of the property and the equity you have in it.
Second charge loan - this is a second mortgage on top of your existing mortgage. It is known as a second charge because it is essentially the second thing that is charged from your bank account after your main mortgage takes priority as the first charge. You can still borrow large amounts, but it will be less than your main mortgage.
Remortgage - this is where you can get new mortgage terms and potentially release a large sum of cash at the same time. You may find that you can get a lower rate than your existing mortgage and save money overall.
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Equity release - for anyone over 55, you can potentially release 20% to 60% of the value of your property through a lifetime mortgage product. This can give you an initial cash sum, which is tax-free and it can be used for home improvements, debt consolidation and gifting to your family.
What are the benefits of using a secured loan?
Borrowing against your home in the form of a secured loan can be relatively cheaper, with rates starting from 3.34% APRC.
Since the lender has valuable collateral as security, this can help you access low rates but also large amounts. Whilst a personal loan may only offer you £25,000 or £50,000 depending on very good credit, a secured loan could potentially offer £100,000 plus.
In addition, a secured loan can give you the flexibility to repay over 10, 20 or 30 years if you would like to and this can translate to very low monthly repayments.
What should you consider before you borrow against your home?
“Borrowing against your home is very common and can help you raise large sums of finance if you need it,” explains David Beard, founder of price comparison website, Lending Expert.
“The main thing to consider is that you are putting your home at risk if you cannot afford to keep up with repayments. So it is important to have a clear budget and plan on how you are going to spend the money and repay on time.”
“Equally, if you are looking to do home improvements, consider the market conditions and what you could to increase the value of your property such as kitchen renovations and home extensions. This could be an effective way to make the home more valuable and sell it for a higher price one day.”
“If you are looking for alternatives, you can also look at credit cards for large purchases and personal loans, although you will usually need a good credit score to be eligible and to access large amounts.”
To check your eligibility for a secured loan and how much you can borrow, you can use the calculator provided by Lending Expert for more information - or to speak with an advisor, call 0161 820 8099.